Financial analysts typically estimate volatilities and correlations from monthly or higher frequency returns when determining the optimal composition of a portfolio. Although it is widely acknowledged that these measures are not necessarily stationary across samples, most analysts assume...

The Sharpe ratio is the most widely used metric for comparing performance across investment managers and strategies, and the information ratio is as commonly used to evaluate performance relative to a benchmark. Although it is widely recognized that non-linearities arising from the inclusion of...

This paper analyzes empirical market utility functions and pricing kernels derived from the DAX and DAX option data for three market regimes. A consistent parametric framework of stochastic volatility is used. All empirical market utility functions show a region of risk proclivity that is...

Machine Learning algorithms have been widely used and proven effective in financial markets. In this paper, we introduced a Machine Learning model set trained on the residual factors from the Fama-French three-factor model (Fama and French, 1992) to find significant alpha factors. To include...

The central question addressed in this note is whether it is better to sell (and re-purchase) appreciated assets now and pay today's long-term capital gains tax rate, or wait to realize gains in the future and pay a likely higher capital gains tax rate. The authors argue that a framework based...

In the article the two approaches to the market's valuation are considered. The first one is based on using of the model of alternative investments, which is the second approximation for the Fed's model. The role of the model of alternative investments has increased for last 25 years since it...

We develop a theory for option pricing with perfect hedging in an inefficient market model where the underlying price variations are autocorrelated over a time. This is accomplished by assuming that the underlying noise in the system is derived by an Ornstein-Uhlenbeck, rather than from a Wiener...

In the article it is shown that year-to-year change of the Samp;P 500 does not depend on profits cycle. On the other hand, year-to-year change of earnings multiple P/E tends to anticorrelate with profits cycle. It shows sluggishness of market response in relation to profits cycle. It is shown...

There are a lot of approaches for estimation of the equity market attractiveness. Fed's model has received a wide prevalence. However this model has a number of essential restrictions. In particular the Fed's model uses current earnings yield, which is based on analysts' estimates of earnings...

The existing two-regime asset pricing models do not reach a consensus, neither in the definition of bull and bear market conditions nor in modelling the non-stationarity of the beta. We propose a new logistic smooth transition regression model to address the beta non-stationarity issue. Using...