We analyze a continuous-time stochastic control problem that arises in the study of several important issues in financial economics. An agent controls the drift and volatility of a diffusion output process by dynamically selecting one of an arbitrary (but finite) number of projects and the...

Risk parity is a portfolio construction technique that scales sections of a portfolio—e.g., stocks, bonds, currencies, commodities—so that forecasted contributions to net portfolio risk match the budget. Because risks are measured from a point-estimate of covariance, the method is subject to...

There is a significant potential demand in many countries around the world for a flexible product to manage individual longevity risk arising from the prevalence of defined contribution pensions, uncertainty in improvements in life expectancy, potential reductions in public pensions and a lack...

We study the interplay between tenure decisions, stock market investment and the public social security system. Housing equity not only serves a dual purpose as a consumption good and as an asset, but also provides insurance to buffer various risks in retirement. Our life cycle model captures...

We evaluate the impact of extreme market shifts on equity portfolios and study the difference in negative and positive reactions to market jumps with implications for portfolio risk management. Employing high-frequency data for the constituents of the S&P500 index over the period 2 January 2003...

This paper studies a non-concave optimization problem under a Value-at-Risk (VaR) or an Expected Shortfall (ES) constraint. The non-concavity of the problem stems from the non-linear payoff structure of the optimizing investor. We obtain the closed-form optimal wealth with an ES constraint as...

Important sources of risk in agriculture are yield and price fluctuations caused by unpredictable and uncontrollable events, inducing income volatility and adding considerable complexity to farmers’ decisions. The literature suggests that these events could affect farmers’ risk aversion in...

This paper introduces a sparse and stable optimization approach for a multi-currency asset allocation problem. We study the benefits of joint optimization of assets and currencies as opposed to the standard industry practice of managing currency risk via so-called currency overlay strategies. In...

Many investors assign part of their funds to asset managers of mutual funds who are given the task of beating a benchmark. Asset managers usually face a constraint on maximum Tracking Error Volatility (TEV), imposed by the risk management office to keep the risk of the portfolio close to that of...

This article studies the optimal portfolio selection of expected utility maximizing investors who must also manage their market-risk exposures. The risk is measured by a so-called weighted Value-at-Risk (WVaR) risk measure, which is a generalization of both Value-at-Risk (VaR) and Expected...