We define risky arbitrages as self-financing trading strategies that have a strictly positive market price but a zero expected cumulative payoff. A continuous time cointegrated system is used to model risky arbitrages as arising from a mean-reverting mispricing component. We derive the optimal...

In the paper, a finite sample test is suggested for detecting changes in the composition of the global minimum variance portfolio. The exact density of the test statistic is calculated. It appears that under the null hypothesis of no change, it is independent of the parameters of the asset...

The study investigates the role of credit risk in a continuous time stochastic asset allocation model, since the traditional dynamic framework does not provide credit risk flexibility. The general model of the study extends the traditional dynamic efficiency framework by explicitly deriving the...

We analyze the properties of different estimators of multivariate volatilities in the presence of microstructure noise, with particular focus on the Fourier estimator. This estimator is consistent in the case of asynchronous data and robust to microstructure effects; further we prove the...

Self-financing optimal investment problem is considered in an incomplete market. The general existence of optimal portfolios is discussed via variational method of stochastic optimal control and the theory of (forward-) backward stochastic differential equations.