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The Bayesian Roots of Risk Parity in a Mean-Risk World

Kaya, Hakan - 2012

Risk parity has been considered a heuristic asset allocation method. In this paper, we show that, to the contrary, risk parity is a special case of a mean-risk type of a portfolio optimization problem with log-regularization to constrain weights. We show that log-regularization leads to a fund...

Persistent link: https://www.econbiz.de/10013103702

Two-Stage Portfolio Optimization with Higher-Order Conditional Measures of Risk

Gulten, Sitki - 2013

The importance of portfolio optimization in finance field has been increasing significantly. Although, portfolio optimization problems over a single period or multiple periods are studied extensively, the problem with an option to rebalance over multiple periods is not considered significantly....

Persistent link: https://www.econbiz.de/10013091376

Local Utility and Multivariate Risk Aversion

Charpentier, Arthur - 2014

We revisit Machina's local utility as a tool to analyze attitudes to multivariate risks. Using martingale embedding techniques, we show that for non-expected utility maximizers choosing between multivariate prospects, aversion to multivariate mean preserving increases in risk is equivalent to...

Persistent link: https://www.econbiz.de/10013065811

The Effect of Mean Reversion on Entry and Exit Decisions Under Uncertainty

Tsekrekos, Andrianos E. - 2010

Many economic variables of interest exhibit a tendency to revert to predictable long-run levels. However, mean reverting processes are rarely used in investment models in the literature. In most models, geometric Brownian motion processes are used for tractability. In this paper, a firm's entry...

Persistent link: https://www.econbiz.de/10013150516

Teasing Out Tail Risk or, Quantum Mechanics to the Rescue : A Practical Method for Characterizing Downside Risk in Non-Gaussian Return Distributions

Stock, Robert D. - 2020

Using equations that arise in quantum mechanics, this paper describes a way to more accurately and efficiently represent non-Gaussian return distributions than the standard method of invoking skewness and kurtosis. Then, it provides a new single intuitive number, defined here as the “crash...

Persistent link: https://www.econbiz.de/10012844430

Public Debt Sustainability Under Uncertainty : An Invariant Set Approach

Rozenov, Rossen - 2017

policy on output, as well as uncertainty in the model parameters and system dynamics. Uncertainty is specified in general …

Persistent link: https://www.econbiz.de/10012956494

Risk Arbitrage Opportunities for Stock Index Options

Post, Thierry - 2019

To analyze the economic significance of pricing errors of stock index options, a system of linear inequalities is developed which completely characterizes all risk arbitrage opportunities which arise if a well-behaved pricing kernel does not exist. The Stochastic Arbitrage system can account for...

Persistent link: https://www.econbiz.de/10012899380

A Dual Characterisation of Regulatory Arbitrage for Coherent Risk Measures

Herdegen, Martin - 2020

We revisit mean-risk portfolio selection in a one-period financial market where risk is quantified by a positively homogeneous risk measure ρ on L1. We first show that under mild assumptions, the set of optimal portfolios for a fixed return is nonempty and compact. However, unlike in classical...

Persistent link: https://www.econbiz.de/10012823360

Kelly Criterion under Model Uncertainty

Xu, Yuhong - 2020

The optimal growth of a wealth process toward a goal is studied under ambiguous markets with first- and second-order moment uncertainties relating to stock returns. Optimal strategies and value functions are solved explicitly. A verification theorem is proved to show that the results solve the...

Persistent link: https://www.econbiz.de/10012825179

Fighting Uncertainty with Uncertainty : A Baby Step

Kashyap, Ravi - 2017

We can overcome uncertainty with uncertainty. Using randomness in our choices and in what we control, and hence in the … decision making process, could potentially offset the uncertainty inherent in the environment and yield better outcomes. The … example we develop in greater detail is the news-vendor inventory management problem with demand uncertainty. We briefly …

Persistent link: https://www.econbiz.de/10012970297