Related papers: Large deviations and portfolio optimization
Variational inference is increasingly being addressed with stochastic optimization. In this setting, the gradient's variance plays a crucial role in the optimization procedure, since high variance gradients lead to poor convergence. A…
Risk diversification is one of the dominant concerns for portfolio managers. Various portfolio constructions have been proposed to minimize the risk of the portfolio under some constrains including expected returns. We propose a portfolio…
This paper proposes a dynamic process of portfolio risk measurement to address potential information loss. The proposed model takes advantage of financial big data to incorporate out-of-target-portfolio information that may be missed when…
We define and develop an approach for risk budgeting allocation - a risk diversification portfolio strategy - where risk is measured using a dynamic time-consistent risk measure. For this, we introduce a notion of dynamic risk contributions…
The standard approach for constructing a Mean-Variance portfolio involves estimating parameters for the model using collected samples. However, since the distribution of future data may not resemble that of the training set, the…
The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on…
We study investment and insurance demand decisions for an agent in a theoretical continuous-time expected utility maximization model that combines risky assets with an (exogenous) insurable background risk. This risk takes the form of a…
The portfolio optimization problem in which the variances of the return rates of assets are not identical is analyzed in this paper using the methodology of statistical mechanical informatics, specifically, replica analysis. We define two…
For the past two decades investors have observed long memory and highly correlated behavior of asset classes that does not fit into the framework of Modern Portfolio Theory. Custom correlation and standard deviation estimators consider…
Optimal reinsurance when Value at Risk and expected surplus is balanced through their ratio is studied, and it is demonstrated how results for risk-adjusted surplus can be utilized. Simplifications for large portfolios are derived, and this…
We explore a decomposition in which returns on a large class of portfolios relative to the market depend on a smooth non-negative drift and changes in the asset price distribution. This decomposition is obtained using general continuous…
This paper studies the mean-variance optimal portfolio choice of an investor pre-committed to a deterministic investment policy in continuous time in a market with mean-reversion in the risk-free rate and the equity risk-premium. In the…
In this paper we estimate the mean-variance portfolio in the high-dimensional case using the recent results from the theory of random matrices. We construct a linear shrinkage estimator which is distribution-free and is optimal in the sense…
In this paper, we discuss the ambiguous chance constrained based portfolio optimization problems, in which the perturbations associated with the input parameters are stochastic in nature, but their distributions are not known precisely. We…
We examine the problem of optimal portfolio allocation within the framework of utility theory. We apply exponential utility to derive the optimal diversification strategy and logarithmic utility to determine the optimal leverage. We enhance…
The probability minimizing problem of large losses of portfolio in discrete and continuous time models is studied. This gives a generalization of quantile hedging presented in [3].
The theory of large deviations is concerned with the exponential decay of probabilities of large fluctuations in random systems. These probabilities are important in many fields of study, including statistics, finance, and engineering, as…
The problem of finding the optimal portfolio for investors is called the portfolio optimization problem. Such problem mainly concerns the expectation and variability of return (i.e., mean and variance). Although the variance would be the…
We present an approach to the dynamic valuation of exposure risks in the multi-period setting, which incorporates a dynamic and multiple diversification of risks in Pareto optimal sense. This approach extends classical indifference premium…
In portfolio optimization problems, the minimum expected investment risk is not always smaller than the expected minimal investment risk. That is, using a well-known approach from operations research, it is possible to derive a strategy…