Purpose of this paper was to research portfolio optimization problem on Croatian capital market using Markowitz theory. Research systematically investigated the selection of securities, and defined the importance of using fundamental analysis when selecting the best combination of securities....

This paper discusses the role that Genetic Algorithms (GA) can have in determining asset allocation for multi sector funds. We present an asset allocation model where the investors' utility function departs from the quadratic utility function assumed by the standard Mean-Variance optimisation....

We examine how the evidence of mean-reversion in stock returns affects dynamic trading behavior for investors with prospect-theory preferences. Particular attention is paid to the trading incentives created by the interaction between prospect-theory preferences and mean-reverting return...

This paper presents a stylized model of interaction among boundedly rational heterogeneousagents in a multi-asset financial market to examine how agents' impatience, extrapolation, andswitching behaviours can affect cross-section market stability. Besides extrapolation and performance based...

In a discrete-time setting, we study arbitrage concepts in the presence of convex trading constraints. We show that solvability of portfolio optimization problems is equivalent to absence of arbitrage of the first kind, a condition weaker than classical absence of arbitrage opportunities. We...

Liquidity has its systemic aspect that is frequently neglected in research and risk management applications. We build a model that focuses on systemic aspects of liquidity and its links with solvency conditions accounting for pertinent interactions between market participants in an agent-based...

The steady-state turnover of a trading strategy is of clear interest to practitioners and portfolio managers, as is the steady-state Sharpe ratio. In this article, we show that in a convenient Gaussian process model, the steady-state turnover can be computed explicitly, and obeys a clear...

We examine a production-based asset pricing model with regime-switching productivity growth, learning and ambiguity. Both mean and volatility of the growth rate of productivity are assumed to follow a Markov chain with an unobservable state. The agent's preferences are characterized by the...

This interdisciplinary paper explains how mathematical techniques of stochastic optimal control can be applied to the recent subprime mortgage crisis. Why did the financial markets fail to anticipate the recent debt crisis, despite the large literature in mathematical finance concerning optimal...

We use Malliavin calculus and the Clark-Ocone formula to derive the hedging strategy of an arithmetic Asian Call option in general terms. Furthermore we derive an expression for the density of the integral over time of a geometric Brownian motion, which allows us to express hedging strategy and...