We consider dynamic asset allocation problems where the agent is required to pay capital gains taxes on her investment gains. This is a very challenging problem because the tax owed whenever a security is sold depends on the cost-basis, i.e. the price(s) at which the shares of the security was...

The Black Litterman (BL) model for portfolio optimization combines investors' expectations with the Markowitz framework. The BL model is designed for investors with private information or with knowledge of market behavior. In this paper I propose a method where investors' expectations are based...

Pairs trading is a technique that is widely used in the financial industry and its profitability has been constantly documented for various markets under different time periods. The two most commonly used methods in pairs trading are distance method and co-integration method. In this paper, we...

Even though correlations between different economies' stock markets have empirically increased over time, it would have been advantageously to invest in developing countries' stock markets such as the Indian stock market, instead of investing in the US-stock market when considering the overall...

GLOBAL FINANCE LIQUIDITY RISK REVISITED: JP Morgan Alternative Assets Portfolio Liquidity Assessment Framework & Models: $500 Billion Fund of Funds: 17 Asset ClassesPresentations atJP Morgan World HQ, 270 Park Ave, Manhattan, NY, USAToJP Morgan Global Head of Quant Research & Analytics, JP...

For a market with m assets and T discrete trading sessions, Cover and Ordentlich (1998) found that the “Cost of Achieving the Best Rebalancing Rule in Hindsight” is p(T, m) = _{n₁ ···^Σ n_m=T} (n₁,^T...,n_m)(n₁/T)(n₁ · · · (n_m/T)^n_m. Their super-replicating strategy is impossible to compute...

The cointegrated-based pair trading crucially depends on two key parameters: the length of the formation period and the divergence signal (or opening trigger), which are generally arbitrarily or statistically determined in the literature. In this article, we perform a sensitivity analysis of the...

We test the Index options market efficiency by means of a statistical arbitrage strategy, i.e. pairs trading. Using data on five Stock Indexes of the Euro Area, we first identify any potential option mispricing based on deviations from the long-run relationship linking their implied...

The current theoretical literature makes contradicting predictions regarding the impact of an investor's horizon on his optimal trading strategy in the presence of bubbles. We analyze this relation empirically using a Regime Switching Model to identify bubbles and crashes. We base our analysis...