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Quadratic optimization for asset portfolios often leads to error maximization, with optimizers zooming in on large errors in the predicted inputs, that is, expected returns and risks. The consequence in most cases is a poor real-time performance. In this paper we show how to improve real-time...
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Several Bayesian model combination schemes, including some novel approaches that simultaneously allow for parameter uncertainty, model uncertainty and robust time varying model weights, are compared in terms of forecast accuracy and economic gains using financial and macroeconomic time series....
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Risk managers use portfolios to diversify away the unpriced risk of individual securities. In this article we compare the benefits of portfolio diversification for downside risk in case returns are normally distributed with the case of fat-tailed distributed returns. The downside risk of a...
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