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In this article, we introduce an algorithm called Backward Hedging, designed for hedging European and American options while considering transaction costs. The optimal strategy is determined by minimizing an appropriate loss function, which…
The optimal allocation of assets has been widely discussed with the theoretical analysis of risk measures, and pessimism is one of the most attractive approaches beyond the conventional optimal portfolio model. The $\alpha$-risk plays a…
Systematic investment strategies are exposed to a subtle but pervasive vulnerability: the progressive erosion of their effectiveness as market regimes change. Traditional risk measures, designed to capture volatility or drawdowns, overlook…
A so called Zipf analysis portofolio management technique is introduced in order to comprehend the risk and returns. Two portofoios are built each from a well known financial index. The portofolio management is based on two approaches: one…
Managing a portfolio to a risk model can tilt the portfolio toward weaknesses of the model. As a result, the optimized portfolio acquires downside exposure to uncertainty in the model itself, what we call "second order risk." We propose a…
The risk of financial positions is measured by the minimum amount of capital to raise and invest in eligible portfolios of traded assets in order to meet a prescribed acceptability constraint. We investigate nondegeneracy, finiteness and…
The success of a cross-sectional systematic strategy depends critically on accurately ranking assets prior to portfolio construction. Contemporary techniques perform this ranking step either with simple heuristics or by sorting outputs from…
One of the crucial problems in mathematical finance is to mitigate the risk of a financial position by setting up hedging positions of eligible financial securities. This leads to focusing on set-valued maps associating to any financial…
The Sharpe ratio is an important and widely-used risk-adjusted return in financial engineering. In modern portfolio management, one may require an m-sparse (no more than m active assets) portfolio to save managerial and financial costs.…
Mean-variance portfolio optimization problems often involve separable nonconvex terms, including penalties on capital gains, integer share constraints, and minimum position and trade sizes. We propose a heuristic algorithm for such problems…
In this article there is no intention to repeat basic concepts about risk management, but we will try to define why often is usefull the time series analysis during the assessment of risks, and how is possible to compute a significative…
Crowding is widely regarded as one of the most important risk factors in designing portfolio strategies. In this paper, we analyze stock crowding using network analysis of fund holdings, which is used to compute crowding scores for stocks.…
As soon as one accepts to abandon the zero-risk paradigm of Black-Scholes, very interesting issues concerning risk control arise because different definitions of the risk become unequivalent. Optimal hedges then depend on the quantity one…
We introduce a new regression method that relates the mean of an outcome variable to covariates, under the "adverse condition" that a distress variable falls in its tail. This allows to tailor classical mean regressions to adverse…
Shorting for hedging exposes to risk when the market dynamics is uncertain. Managing uncertainty and risk exposure is key in portfolio management practice. This paper develops a robust framework for dynamic minimum-variance hedging that…
In this research, starting from a widely accepted definition of risk, we support the idea that risk reduction is a more realistic objective than risk minimization, which represents a theoretical utopia. Furthermore, significant risk…
This study presents a deep reinforcement learning approach for global hedging of long-term financial derivatives. A similar setup as in Coleman et al. (2007) is considered with the risk management of lookback options embedded in guarantees…
The paper has 2 main goals: 1. We propose a variant of the CAPM based on coherent risk. 2. In addition to the real-world measure and the risk-neutral measure, we propose the third one: the extreme measure. The introduction of this measure…
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures…