Assumptions about the dynamic and distributional behavior of risk factors are crucial for the construction of optimal portfolios and for risk assessment. Although asset returns are generally characterized by conditionally varying volatilities and fat tails, the normal distribution with constant...

We propose a comparison of the performance of two alternative approaches for tactical asset allocation (TAA) strategies. Both methods rely on the predictability in series of returns. One approach derives optimal aggressiveness factors, which define the weighting in the portfolio, from...

In standard static Mean-Variance approach portfolio is presented by one allocation vector optimized in terms of expected returns & variance-covariance (VcV) matrix. Such one-dimensional approach is not suitable for Fixed Income: i) portfolio cannot be described by allocation vector only, and ii)...

Using the Hamilton-Jacobi-Bellman equation, we derive both a Keynes-Ramsey rule and a closed form solution for an optimal consumption-investment problem with labor income. The utility function is unbounded and uncertainty stems from a Poisson process. Our results can be derived because of the...

First developed by Markowitz (1952), the mean-variance framework is the most widespread theoretical approximation to the portfolio problem. Nevertheless, successful application in the investment community has been limited. Assumptions such as normality of returns and a static correlation matrix...

This paper simplifies Merton’s (1973) fund separation theorem by showing that investors will hold hedge funds in their optimal portfolio only to hedge against changes in the slope or position of the instantaneous capital market line. This result allows for incomplete markets and does not...

A model of bank’s dynamic asset management problem in case of partially observed future economic conditions and requirements concerning level of risk taken has been built. It requires solving the resulting optimal control with random terminal condition resulting from partial observation of...

Multicriteria portfolio optimization started with the Markowitz mean-variance model (Markowitz 1952, 1959). This model assumes that the goal of an average or standard investor is to maximize the unknown return on investment. In this paper we propose a risk model related to insurance industry....

Modified Value-at-Risk (VaR) and Expected Shortfall (ES) are recently introduced downside risk estimators based on the Cornish-Fisher expansion for assets such as hedge funds whose returns are non-normally distributed. Modified VaR has been widely implemented as a portfolio selection criterion....

The paper introduces a model of bid/ask price formation in an imperfectly centralized forex dealership market in continuous time. The dealers have costly access to best quotes while interpreting signals from the joint dealer-customer order flow and deciding upon their own price quotes and...