We consider an investor faced with the utility maximization problem in which the risky asset price process has pure-jump dynamics affected by an unobservable continuous-time finite-state Markov chain, the intensity of which can also be controlled by actions of the investor. Using the classical...

This paper derives a robust online equity trading algorithm that achieves the greatest possible percentage of the final wealth of the best pairs rebalancing rule in hindsight. A pairs rebalancing rule chooses some pair of stocks in the market and then perpetually executes rebalancing trades so...

We investigate whether alternative asset classes should be included in optimal portfolios of the most prominent investor personae in the Behavioral Finance literature, namely, the Cumulative Prospect Theory, the Markowitz and the Loss Averse types of investors. We develop a stochastic spanning...

This note is based on a recent confidence index introduced in the context of compensating probability factors for deviations of subjective probability measures from equivalent martingale measures. The index is adjusted for loss gain probability spreads, and it explains momentum in confidence. We...

This paper outlines a tactical asset allocation (TAA) strategy that takes signals from the credit markets and applies them to the stock market. A power model is built using the Russell 2000 equity index and the Bank of America/Merrill Lynch High Yield B index. This model is then used in a...

Modern Portfolio Theory (MPT), as developed by Markowitz (1952) and others, is often described as a nice but impractical theory. The full MPT framework is very sensitive to parameters like the expected returns which are estimated with errors, resulting in allocations with even larger errors....

In the mutual funds industry the rating process is very important, and Morningstar is surely the most influential international rating agency.In this work we consider the problem of evaluating if the risk component is adequately accounted for in the Morningstar rating. To face this problem we...

In this paper we address three main objections of behavioral finance to the theory of rational finance, considered as “anomalies” the theory of rational finance cannot explain: (i) Predictability of asset returns; (ii) The Equity Premium; (iii) The Volatility Puzzle. We offer resolutions of...

VAA (Vigilant Asset Allocation) is a dual-momentum based investment strategy with a vigorous crash protection and a fast momentum filter. Dual momentum combines absolute (trendfollowing) and relative (strength) momentum. Compared to the traditional dual momentum approaches, we have replaced the...

Fixed income investors favor higher yields with lower risk. Our objective in this paper is to outline an active fixed income strategy that maximizes yield and is protected against major risk factors affecting fixed income securities. In particular, we look at interest rate risk, credit risk,...