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Given two random realized returns on an investment, which is to be preferred? This is a fundamental problem in finance that has no definitive solution except in the case one investment always returns more than the other. In 1952 Markowitz…

We propose a definition of diversification as a binary relationship between financial portfolios. According to it, a convex linear combination of several risk positions with some weights is considered to be less risky than the probabilistic…

In this paper we develop a novel methodology for estimation of risk capital allocation. The methodology is rooted in the theory of risk measures. We work within a general, but tractable class of law-invariant coherent risk measures, with a…

This work proposes a novel portfolio management technique, the Meta Portfolio Method (MPM), inspired by the successes of meta approaches in the field of bioinformatics and elsewhere. The MPM uses XGBoost to learn how to switch between two…

Modeling and managing portfolio risk is perhaps the most important step to achieve growing and preserving investment performance. Within the modern portfolio construction framework that built on Markowitz's theory, the covariance matrix of…

Many cryptocurrency brokers nowadays offer a variety of derivative assets that allow traders to perform hedging or speculation. This paper proposes an effective algorithm based on neural networks to take advantage of these investment…

We study the problem of active portfolio management where an investor aims to outperform a benchmark strategy's risk profile while not deviating too far from it. Specifically, an investor considers alternative strategies whose terminal…

Portfolio optimization is a task that investors use to determine the best allocations for their investments, and fund managers implement computational models to help guide their decisions. While one of the most common portfolio optimization…

We study the problem of portfolio insurance from the point of view of a fund manager, who guarantees to the investor that the portfolio value at maturity will be above a fixed threshold. If, at maturity, the portfolio value is below the…

We present an approach to derivative exposure management based on subjective and implied probabilities. We suggest to maximize the valuation difference subject to risk constraints and propose a class of risk measures derived from the…

We propose a distributional framework for benchmarking socio-technical risks of foundation models with quantified statistical significance. Our approach hinges on a new statistical relative testing based on first and second order stochastic…

Individual investors are now massively using online brokers to trade stocks with convenient interfaces and low fees, albeit losing the advice and personalization traditionally provided by full-service brokers. We frame the problem faced by…

Portfolio optimization methods suffer from a catalogue of known problems, mainly due to the facts that pair correlations of asset returns are unstable, and that extremal risk measures such as maximum drawdown are difficult to predict due to…

Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…

We consider a variation on the classical finance problem of optimal portfolio design. In our setting, a large population of consumers is drawn from some distribution over risk tolerances, and each consumer must be assigned to a portfolio of…

We consider a reference security, understood to be an attractive investment, with the caveat that an investor is not willing to directly invest in the security, for presence of constraints, either investor specific or pertaining to the…

Portfolio diversification, traditionally measured through asset correlations and volatilitybased metrics, is fundamental to managing financial risk. However, existing diversification metrics often overlook non-numerical relationships…

Equity risk premium is a central component of every risk and return model in finance and a key input to estimate costs of equity and capital in both corporate finance and valuation. An article by Damodaran examines three broad approaches…

A classical portfolio theory deals with finding the optimal proportion in which an agent invests a wealth in a risk-free asset and a probabilistic risky asset. Formulating and solving the problem depend on how the risk is represented and…

In the market place, diversification reduces risk and provides protection against extreme events by ensuring that one is not overly exposed to individual occurrences. We argue that diversification is best measured by characteristics of the…