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It is customary that when security prices fully reflect all available information, the markets for those securities are said to be efficient. And if markets are inefficient, investors can use available information ignored by the market to…
This paper introduces an innovative framework for the periodic evaluation of defined-contribution pension funds. The performance of the pension fund is evaluated not only at retirement, but also within the interim periods. In contrast to…
Being able to predict the occurrence of extreme returns is important in financial risk management. Using the distribution of recurrence intervals---the waiting time between consecutive extremes---we show that these extreme returns are…
The principal portfolios of the standard Capital Asset Pricing Model (CAPM) are analyzed and found to have remarkable hedging and leveraging properties. Principal portfolios implement a recasting of any correlated asset set of N risky…
We consider a portfolio optimisation problem for a utility-maximising investor who faces convex constraints on his portfolio allocation in Heston's stochastic volatility model. We apply the duality methods developed in previous work to…
This paper examines the volatility and covariance dynamics of cash and futures contracts that underlie the Optimal Hedge Ratio (OHR) across different hedging time horizons. We examine whether hedge ratios calculated over a short term…
Multistage risk-averse optimal control problems with nested conditional risk mappings are gaining popularity in various application domains. Risk-averse formulations interpolate between the classical expectation-based stochastic and minimax…
In optimization problems, the quality of a candidate solution can be characterized by the optimality gap. For most stochastic optimization problems, this gap must be statistically estimated. We show that for risk-averse problems, standard…
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.…
Stock portfolio optimization is the process of continuous reallocation of funds to a selection of stocks. This is a particularly well-suited problem for reinforcement learning, as daily rewards are compounding and objective functions may…
Identifying causal relationships for a treatment intervention is a fundamental problem in health sciences. Randomized controlled trials (RCTs) are considered the gold standard for identifying causal relationships. However, recent…
Monte-Carlo valuation engines can generate pathwise sensitivities of a derivative value with respect to a high-dimensional vector of model primitives. Hedge ratios with respect to market instruments are then linked to these primitive…
We find that the CAPM fails to explain the small firm effect even if its non-parametric form is used which allows time-varying risk and non-linearity in the pricing function. Furthermore, the linearity of the CAPM can be rejected, thus the…
This work initiates research into the problem of determining an optimal investment strategy for investors with different attitudes towards the trade-offs of risk and profit. The probability distribution of the return values of the stocks…
Monetary risk measures are usually interpreted as the smallest amount of external capital that must be added to a financial position to make it acceptable. We propose a new concept: intrinsic risk measures and argue that this approach…
We revisit the recently introduced concept of return risk measures (RRMs) and extend it by incorporating risk management via multiple so-called eligible assets. The resulting new class of risk measures, termed multi-asset return risk…
We expose a theoretical hedging optimization framework with variational preferences under convex risk measures. We explore a general dual representation for the composition between risk measures and utilities. We study the properties of the…
The paper analyses the increasing popularity of large funds in the secondary private equity market, which are pegged on the perceived larger scale advantages of operational efficiency and fewer manager relationships (Reuter & Zitzewitz,…
In structural credit risk models, default events and the ensuing losses are both derived from the asset values at maturity. Hence it is of utmost importance to choose a distribution for these asset values which is in accordance with…
This paper discusses an alternative explanation for the empirical findings contradicting the positive relationship between risk (variance) and reward (expected return). We show that these contradicting results might be due to the false…