We suggest that the term structure of volatility futures (e.g. VIX futures) shows a clear pattern of dependence on the current level of VIX index. At the low level of VIX (below 20) the term structure is highly upward sloping; at the high VIX level (over 30) it is strongly downward sloping. We...

We implement a long-horizon static and dynamic portfolio allocation involving a risk-free and a risky asset. This model is calibrated at a quarterly frequency for ten European countries. We also use maximum-likelihood estimates and Bayesian estimates to account for parameter uncertainty. We find...

We consider the problem of optimal dynamic trading in the presence of predictable returns and proportional transaction costs for an investor choosing among multiple assets. The value of each security equals the expected value of holding the asset plus the value of all options to trade. We...

This article introduces a very flexible framework for causal and predictive market views and stress-testing. The framework elegantly combines Bayesian networks (BNs) and Entropy Pooling (EP). In the new framework, BNs are used to generate a finite set of joint causal views / stress-tests for the...

In the knowledge that the ex-post performance of Markowitz efficient portfolios is inferior to that implied ex-ante, we make two contributions to the portfolio selection literature. Firstly, we propose a methodology to identify the region of risk-expected return space where ex-post performance...

The inquiries to return predictability are traditionally limited to the first two moments, mean and volatility. Analogously, literature on portfolio selection also stems from a moment-based analysis with up to the fourth moment being considered. This paper develops a distribution-based framework...

We solve a dynamic general equilibrium model with generalized disappointment aversion preferences and continuous state endowment dynamics. We apply the framework to the term structure of interest rates and show that the model generates an upward sloping term structure of nominal interest rates,...

The contour map of estimation error of Expected Shortfall (ES) is constructed. It allows one to quantitatively determine the sample size (the length of the time series) required by the optimization under ES of large institutional portfolios for a given size of the portfolio, at a given...

An essential motive for investing in commodities is to enhance the performance of portfolios traditionally including only stocks and bonds. We analyze the in-sample and out-of-sample portfolio effects resulting from adding commodities to a stock-bond portfolio for commonly implemented...