Banks must manage their trading books, not just value them. Pricing includes valuation adjustments collectively known as XVA (at least credit, funding, capital and tax), so management must also include XVA. In trading book management we focus on pricing, hedging, and allocation of prices or...

This paper proposes a novel scheme for achieving high investment performances with Mean-Variance (MV) portfolios. As is well-known, MV portfolio performances largely depend on the quality of estimates of parameters, namely expected returns and covariance matrices. Particularly, easily...

The vine structure has been widely studied as a graphical representation for high-dimensional dependence modeling, depiction of complicated probability density functions, and robust correlation estimation. However, the number of candidate vine structures grows exponentially as the number of...

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...

We develop scenario-based stochastic programming models for hedging the risks of international portfolios using options. The models provide an increasing level of integration in managing market and foreign exchange (FX) risks. We start with a single-stage model with currency options for...

In this paper we propose a novel application of Gaussian processes (GPs) to financial asset allocation. Our approach is deeply rooted in Stochastic Portfolio Theory (SPT), a stochastic analysis framework introduced by Robert E. Fernholz that aims at flexibly analysing the performance of certain...

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 knowledge of market behaviour. In this paper, I propose a method where investors' expectations are based on...

We derive sufficient conditions for non-emptyness of the efficient set for Stochastic Dominance Relations, commonly applied in Economics and Finance, over sets of distributions on the real line. We do so via the use of the concept of stochastic spanning and its characterization via a saddle type...

Assuming that probabilities (capacities) of events are random, this paper introduces a novel model of decision making under ambiguity, called Shadow probability theory, a generalization of the Choquet expected utility. In this model, probabilities of observable events in a subordinated...