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Uncertainty is a pervasive challenge in decision and risk management and it is usually studied by quantification and modeling. Interestingly, engineers and other decision makers usually manage uncertainty with strategies such as…
Decision-making pipelines are generally characterized by tradeoffs among various risk functions. It is often desirable to manage such tradeoffs in a data-adaptive manner. As we demonstrate, if this is done naively, state-of-the art…
We introduce a neural network approach for assessing the risk of a portfolio of assets and liabilities over a given time period. This requires a conditional valuation of the portfolio given the state of the world at a later time, a problem…
Multi-period portfolio optimization is important for real portfolio management, as it accounts for transaction costs, path-dependent risks, and the intertemporal structure of trading decisions that single-period models cannot capture.…
The real options approach is now considered an effective alternative to the corporate DCF model for a feasibility study. The current paper offers a practical methodology employing binomial trees and real options techniques for evaluating…
This paper explores the practical approach to portfolio selection methods for investments. The study delves into portfolio theory, discussing concepts such as expected return, variance, asset correlation, and opportunity sets. It also…
Portfolio diversification and active risk management are essential parts of financial analysis which became even more crucial (and questioned) during and after the years of the Global Financial Crisis. We propose a novel approach to…
In general, underestimation of risk is something which should be avoided as far as possible. Especially in financial asset management, equity risk is typically characterized by the measure of portfolio variance, or indirectly by quantities…
Automated investment managers, or robo-advisors, have emerged as an alternative to traditional financial advisors. The viability of robo-advisors crucially depends on their ability to offer personalized financial advice. We introduce a…
Portfolio managers often evaluate performance relative to benchmark, usually taken to be the Standard & Poor 500 stock index fund. This relative portfolio wealth is defined as the absolute portfolio wealth divided by wealth from investing…
Factor models have become a common and valued tool for understanding the risks associated with an investing strategy. In this report we describe Exabel's factor model, we quantify the fraction of the variability of the returns explained by…
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…
This paper enhances the pricing of derivatives as well as optimal control problems to a level comprising risk. We employ nested risk measures to quantify risk, investigate the limiting behavior of nested risk measures within the classical…
This article develops a model that takes into account skewness risk in risk parity portfolios. In this framework, asset returns are viewed as stochastic processes with jumps or random variables generated by a Gaussian mixture distribution.…
We address a portfolio selection problem that combines active (outperformance) and passive (tracking) objectives using techniques from convex analysis. We assume a general semimartingale market model where the assets' growth rate processes…
In this review, we provide practical guidance on some of the main machine learning tools used in portfolio weight formation. This is not an exhaustive list, but a fraction of the ones used and have some statistical analysis behind it. All…
Traditional approaches to financial asset allocation start with returns forecasting followed by an optimization stage that decides the optimal asset weights. Any errors made during the forecasting step reduce the accuracy of the asset…
We consider a single-period portfolio selection problem for an investor, maximizing the expected ratio of the portfolio utility and the utility of a best asset taken in hindsight. The decision rules are based on the history of stock returns…
This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…
More than seventy years ago Harry Markowitz formulated portfolio construction as an optimization problem that trades off expected return and risk, defined as the standard deviation of the portfolio returns. Since then the method has been…