We consider the problem of tracking the optimal allocation between a risky and a risk-free asset when the expected return is stochastic and trading incurs transaction costs. The rebalancing policy optimises the tradeoff between the opportunity cost of holding a suboptimal portfolio and the...

In this paper, we build estimation error in mean returns into the mean-variance (MV) portfolio theory under the assumption that returns on individual assets follow a joint normal distribution. We derive the conditional sampling distribution of the MV portfolio along with its mean and risk return...

In this paper we introduce uncertainty in the investment appraisal, managed through a new criterion called Average Internal Rate of Return (AIRR), introduced in Magni (2010). The consistency of the arithmetic of variables represented with intervals or fuzzy numbers makes it possible to apply the...

This paper presents a portfolio construction approach that combines the hierarchical clustering of a large asset universe with the stock price momentum. On the one hand, investing in high-momentum stocks stabilizes portfolio performance across economic regimes and enhances risk-adjusted returns....

This paper presents a theoretical framework to model the evolution of a portfolio whose weights vary over time. Such a portfolio is called a dynamic portfolio. In a first step, considering a given investment policy, we define the set of the investable portfolios. Then, considering portfolio...

We propose a framework that allows a portfolio manager to quantify the probability of simultaneous losses in multiple assets of a collateral portfolio. Using this framework, we propose a methodology to conduct stress tests on the market value of the portfolio of collateral when undesirable...

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...

Ever since Harry Markowitz published his seminal paper on portfolio selection, investors have incorporated estimates of future volatilities and correlations into their asset allocation process. While portfolio construction methods continue to evolve, many investors continue to forecast...