Related papers: Large deviations and portfolio optimization
We consider portfolio optimization in futures markets. We model the entire futures price curve at once as a solution of a stochastic partial differential equation. The agents objective is to maximize her utility from the final wealth when…
As it is known in the finance risk and macroeconomics literature, risk-sharing in large portfolios may increase the probability of creation of default clusters and of systemic risk. We review recent developments on mathematical and…
In this paper, we propose a new class of optimization problems, which maximize the terminal wealth and accumulated consumption utility subject to a mean variance criterion controlling the final risk of the portfolio. The multiple-objective…
Instead of controlling "symmetric" risks measured by central moments of investment return or terminal wealth, more and more portfolio models have shifted their focus to manage "asymmetric" downside risks that the investment return is below…
Kelly's Criterion is well known among gamblers and investors as a method for maximizing the returns one would expect to observe over long periods of betting or investing. These ideas are conspicuously absent from portfolio optimization…
Portfolio diversification is a cornerstone of modern finance, while risk aversion is central to decision theory; both concepts are long-standing and foundational. We investigate their connections by studying how different forms of…
This paper studies the portfolio optimization problem when the investor's utility is general and the return and volatility of the risky asset are fast mean-reverting, which are important to capture the fast-time scale in the modeling of…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
In this paper, we consider the portfolio optimization problem in a financial market under a general utility function. Empirical results suggest that if a significant market fluctuation occurs, invested wealth tends to have a notable change…
Large deviations for fat tailed distributions, i.e. those that decay slower than exponential, are not only relatively likely, but they also occur in a rather peculiar way where a finite fraction of the whole sample deviation is concentrated…
We consider a long-term optimal investment problem where an investor tries to minimize the probability of falling below a target growth rate. From a mathematical viewpoint, this is a large deviation control problem. This problem will be…
The investor is interested in the expected return and he is also concerned about the risk and the uncertainty assumed by the investment. One of the most popular concepts used to measure the risk and the uncertainty is the variance and/or…
The event of large losses plays an important role in credit risk. As these large losses are typically rare, and portfolios usually consist of a large number of positions, large deviation theory is the natural tool to analyze the tail…
Motivated by practical applications, we explore the constrained multi-period mean-variance portfolio selection problem within a market characterized by a dynamic factor model. This model captures predictability in asset returns driven by…
We develop a general theory of risk measures that determines the optimal amount of capital to raise and invest in a portfolio of reference traded securities in order to meet a pre-specified regulatory requirement. The distinguishing feature…
This paper is concerned with portfolio optimization models for creating high-quality lists of recommended items to balance the accuracy and diversity of recommendations. However, the statistics (i.e., expectation and covariance of ratings)…
We show how one can actually take advantage of the strongly non-Gaussian nature of the fluctuations of financial assets to simplify the calculation of the Value-at-Risk of complex non linear portfolios. The resulting equations are not hard…
The paper solves the problem of optimal portfolio choice when the parameters of the asset returns distribution, like the mean vector and the covariance matrix are unknown and have to be estimated by using historical data of the asset…
This paper studies a continuous-time portfolio selection problem under a general distribution of random risk aversion (RRA). We provide a complete characterization of all deterministic equilibrium strategies in closed form. Our results show…
Optimal portfolio selection problems are determined by the (unknown) parameters of the data generating process. If an investor wants to realise the position suggested by the optimal portfolios, he/she needs to estimate the unknown…