Traditional portfolio optimization has been often criticized since it does not account for estimation risk. Theoretical considerations indicate that estimation risk is mainly driven by the parameter uncertainty regarding the expected asset returns rather than their variances and covariances....

Suppose that we are searching for the maximum of many unknown and analytically untractable quantities or, say, the "best alternative" among several candidates. If our decision is based on historical or simulated data there is some sort of selection bias and it is not evident if our choice is...

It is well known that the correlation between financial series varies over time. Here, the forecasting performance of different time-varying correlation models is compared for cross-country correlations of weekly G5 and daily European stock market indices. In contrast to previous studies only...

Trimmed regions are a powerful tool of multivariate data analysis. They describe a probability distribution in Euclidean d-space regarding location, dispersion, and shape, and they order multivariate data with respect to their centrality. Dyckerhoff and Mosler (201x) have introduced the class of...

In the context of modern portfolio theory, we compare the out-of-sample performance of 8 investment strategies which are based on statistical methods with the out-of-sample performance of a family of trivial strategies. A wide range of approaches is considered in this work, including the...

This paper investigates a selection of methods disentangling contributions from price jumps to realized variance. Flat prices (consecutively sampled prices in calendar time with the same value) and no trading (no price observation at sampling points), both frequently occurring stylized facts in...

Credit ratings are ordinal predictions for the default risk of an obligor. To evaluate the accuracy of such predictions commonly used measures are the Accuracy Ratio or, equivalently, the Area under the ROC curve. The disadvantage of these measures is that they treat default as a binary variable...