Consider an agent who holds a stock, but is allowed to buy and hold some quantity of at-the-money put options on the stock. Such an agent must decide the optimal use of financial derivatives under trade restrictions. This paper uses simulation to compare the optimal quantity when the agent...

Although portfolio management didn’t change much during the 40 years after the seminal works of Markowitz and Sharpe, the development of risk budgeting techniques marked an important milestone in the deepening of the relationship between risk and asset management. Risk parity then became a...

Conditional Value-at-Risk (CVaR) measures the expected loss amount beyond VaR. It has vast advantage over VaR because of its property of coherence. This paper gives an analytical solution in a complete market setting to the risk reward problem faced by a portfolio manager whose portfolio needs...

Empirical evidence suggests that asset returns correlate more strongly in bear markets than conventional correlation estimates imply. We propose a method for determining complete tail-correlation matrices based on Value-at-Risk (VaR) estimates. We demonstrate how to obtain more efficient...

A model is presented to characterise the (optimal) demand for cash balances in deregulated markets. After the model of James Tobin, 1958, net balances are determined in order to maximise the expected return of a certain portfolio combining risk and capital. Unlike the model of Tobin, however,...

Most socially responsible investment funds combine a sustainability objective with a tracking error constraint. We characterize the impact of a sustainability constraint on the mean-tracking error efficient frontier and illustrate this on a universe of US stocks for the period 2003–2010.

Generating a high positive excess return in a prospective period does not necessarily increase the empirical Sharpe ratio of an investment fund. Therefore, we derive a critical range in which prospective excess returns must lie in order to increase its empirical Sharpe ratio. We also give a...

We prove a formula for the computation of optimal financial investments in an expected utility framework with arbitrary (not necessarily concave) utility functions. This extends classical results on optimal financial investments for strictly concave utility functions and is of importance...

The paper aims at constructing an optimal portfolio by applying Sharpe’s single index model of capital asset pricing in different scenarios, one is ex ante stock price bubble scenario and stock price bubble and bubble burst is second scenario. Here we considered beginning of year 2010 as rise...

This study is intended to measure and compare the Pakistani industries performance as well to measure the impact of September 11, 2001 terrorist attack on Pakistani industries. The performance measures such as Sharpe ratio (1966), Treynor ratio (1965), Idiosyncratic risk, market risk, beta and...