We comprehensively analyze the predictive power of several option implied variables for monthly S & P 500 excess returns and realized variance. The correlation risk premium (CRP) emerges as a strong predictor of both excess returns and realized variance. This is true both in- and out-of-sample....

We revisit the question whether commodities should be included in investors' portfolios. We employ for the first time a stochastic dominance efficiency (SDE) approach to construct optimal portfolios with and without commodities and we evaluate their comparative performance. SDE circumvents the...

Expanded separation portfolios ( Se ) and Treasurer’s portfolios T( Se ) are a sect of themselves. They arise out of risk-free assets and risky portfolios like other mutual funds. But their distinctive features set them apart from the common lot. This paper puts forth, firstly, a down-to-earth...

This paper discusses how to introduce liquidity into the well known mean-variance framework of portfolio selection using a representative sample of Spanish equity portfolios. Either by estimating mean-variance liquidity constrained frontiers or directly estimating optimal portfolios for...

The seminal work by Markowitz in 1959 introduced portfolio theory to the world. The prevailing notion since then has been that portfolio risk is non linear i.e. you cannot use Linear Programming (LP) to optimize your portfolio. We will in this paper show that simple portfolio drawdown...

We study mean-variance hedging under portfolio constraints in a general semimartingale model. The constraints are formulated via predictable correspondences, meaning that the trading strategy is restricted to lie in a closed convex set which may depend on the state and time in a predictable way....

An intensive and still growing body of research focuses on estimating a portfolio’s Value-at-Risk.Depending on both the degree of non-linearity of the instruments comprised in the portfolio and thewillingness to make restrictive assumptions on the underlying statistical distributions, a...

This paper applies the dichotomous theory of choice by Zou (2000a) tothe analysis of investmentstrategies and security markets. Issues concerning individualoptimality, (approximate) arbitrage,capital market equilibrium, and Pareto efficiency are studied undervarious market conditions. Among the...

Policy portfolios are a fixture of institutional investment management, but they may not serve the purposes for which they are intended. A policy portfolio serves primarily as an expression of an investor's return and risk preferences. Secondarily, it serves as a benchmark for determining the...

This paper proposes a theoretical analysis on the impacts of using a suboptimal information set on the three main components used in asset pricing, namely the risk physical and neutral measures and the relative pricing kernel.The analysis is carried out by means of a portfolio optimization...