While it is common knowledge that portfolio separation in a continuous-time lognormal market is due to the basic properties of the Gaussian distribution, the usual textbook exposition relies on dynamic programming and thus Itô stochastic calculus and the appropriate regularity conditions. This...

The objective of this paper is to combine a real options framework with portfolio optimization techniques and to apply this new framework to investments in the electricity sector. In particular, a real options model is used to assess the adoption decision of particular technologies under...

In this paper, we propose a method for hedge fund replication using a factor-based model supplemented with a series of risk and return constraints that implicitly target all the moments of the hedge fund return distribution. We use the approach to replicate the monthly returns of ten broad hedge...

Using sectorial indices of the Brazilian market, we compare the portfolio optimization approach known as risk parity with minimum variance and equally weighted approaches. We apply various estimators for the covariance matrix to each portfolio strategy, since portfolio variance is considered as...

Trading with futures is complex and abounds with risks, to mitigate which a multi-pronged approach such as diversification in different asset classes across dissimilar markets or imposing risk budgets on individual assets and/or asset classes or enforcing capital budgets and other investor...

Pension funds and life insurers offering annuities hold long term liabilities linked to longevity. Risk management of life annuity portfolios aims to immunize or hedge both interest rate and mortality risks. Standard fixed interest duration-convexity hedging must be adapted to allow for both...

We show that internationally diversified portfolios carry sizeable political risk premia. We use a tail-risk portfolio selection model to obtain political efficient frontiers from skewed return distributions and manage political risk, and design an inference test to draw conclusions. We find...

Measuring risk is at the center of modern financial risk management. As the world economy is becoming more complex and standard modeling assumptions are violated, the advanced artificial intelligence solutions may provide the right tools to analyze the global market. In this paper, we provide a...

Recently, a lot of attention has been focused on developing portfolio allocation models that take into account the asymmetric nature of asset return distributions. In this paper, we extend Krokhmal, Palmquist, and Uryasev's approach by using CVaR-like constraints in the traditional portfolio...