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...

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...

This paper proposes a generalized exponential moving average (EMA) model, a new stochastic volatility model with time-varying expected return in financial markets. In particular, we effectively apply a particle filter (PF) to sequential estimation of states and parameters in a state space...

It's time for a fresh look, a new perspective, on investment performance evaluation, because performance evaluation is conducted much the same way today as it was 30 years ago. While peer groups and indexes have painted fuzzy evaluative pictures, a modern-day application of classical statistics...

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...

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...

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...

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...

Artificial Neural Networks (ANN), Support Vector Machines (SVM) and Relevance Vector Machines (RVM) were used to predict daily returns for an FX carry basket. Market observable exogenous variables known to have a relationship with the basket along with lags of the basket's return were used as...

The classical theory of comparative risk aversion shows the equivalence of various criteria for comparing the aversion of cardinal preferences to risks with real outcomes. Parts of this theory have been extended to outcomes in Euclidean spaces. We complete, unify and generalize this theory. Our...