We consider the position management problem for an agent trading a mean- reverting asset. This problem arises in many statistical and fundamental arbitrage trading situations when the short-term returns on an asset are predictable but limited risk-bearing capacity does not allow to fully exploit...

Asset prices are forward looking. This evidence implies that prices of financial assets are essentially determined by the traders expectations about future prices. Another evidence about asset prices is that these do not seem to follow a predictable pattern over time; we observe periods of high...

This paper decomposes the overall market beta of common stocks into four parts reflecting uncertainty related to the long-run dynamics of stock- specific and market-wide cash flows and discount rates. We employ a discrete time version of Merton�s Intertemporal CAPM to test whether these four...

In this paper we present a continuous time dynamical model of heterogeneous agents interacting in a financial market where transactions are cleared by a market maker. The market is composed of fundamentalist, trend following and contrarian agents who process information from the market with...

This paper decomposes the overall market beta of common stocks into four parts reflecting uncertainty related to the long-run dynamics of stock- specific and market-wide cash flows and discount rates. We employ a discrete time version of Merton’s Intertemporal CAPM to test whether these four...

An important literature has pointed out the coordination problems faced by the agents, in particular the financial one when they have to manage risk and their portfolio. If we follow Kaldor and its definition of speculation, then we could point out that in this case agents are short term...

We propose a decomposition method for the solution of a dynamic portfolio optimization problem which fits the formulation of a multistage stochastic programming problem. The method allows to obtain time and nodal decomposition of the problem in its arborescent formulation applying a discrete...

In this paper we study the continuous time optimal portfolio selection problem for an investor with a finite horizon who maximizes expected utility of terminal wealth and faces transaction costs in the capital market. It is well known that, depending on a particular structure of transaction...

Markowitz’s (1952) portfolio theory has permeated financial institutions over the past 50 years. Assuming that returns are normally distributed, Markowitz suggests that portfolio optimization should be performed in a mean-variance framework. With the emergence of hedge funds and their...