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The investment industry lacks an unified framework for handling derivative instruments in general portfolio management. With the increased use of derivatives, there is a need for a framework that aligns fundamental terminology and concepts. The main challenges with the current practices are...
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This article presents some of the pros and cons of variance and CVaR as portfolio risk measures in mean-risk optimization. While variance is the original risk measure, thoroughly studied for the past 70 years, this article argues that there are practically no reasons for continuing to use...
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We combine a dynamic programming approach (stochastic optimal control) with a multi-stage stochastic programming approach (MSP) in order to solve various problems in personal finance and pensions. Stochastic optimal control produces an optimal policy that is easy to understand and implement....
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We present efficient partial differential equation (PDE) methods for continuous time mean-variance portfolio allocation problems when the underlying risky asset follows a jump-diffusion. The standard formulation of mean-variance optimal portfolio allocation problems, where the total wealth is...
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We propose a model for analyzing dynamic pairs trading strategies using the stochastic control approach. The model is explored in an optimal portfolio setting, where the portfolio consists of a bank account and two co-integrated stocks and the objective is to maximize for a fixed time horizon,...
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