While it is often argued that allocation decisions can be best expressed in terms of exposure to rewarded risk factors, as opposed to somewhat arbitrary asset class decompositions, the practical implications of this paradigm shift for the optimal design of the policy portfolio still remain...

Many industries use dynamic pricing on an operational level to maximize revenue from selling a fixed capacity over a finite horizon. Classical risk-neutral approaches do not accommodate the risk aversion often encountered in practice. We add to the scarce literature on risk aversion by...

This article proposes a non-parametric portfolio selection criterion for the static asset allocation problem in a robust higher-moment framework. Adopting the Shortage Function approach, we generalize the multi-objective optimization technique in a four-dimensional space using L-moments, and...

Accurate estimation and optimal control of tail risk is important for building portfolios with desirable properties, especially when dealing with a large set of assets. In this work, we consider optimal asset allocations strategies based on the minimization of two asymmetric deviation measures,...

We study the distributionally robust stable tail adjusted return ratio (DRSTARR) portfolio optimization problem, in which the objective is to maximize the STARR performance measure under data-driven Wasserstein ambiguity. We consider two types of imperfectly known uncertainties, named uncertain...

We introduce the technique of worst case search to macro stress testing. Among the macroeconomic scenarios satisfying some plausibility constraint we determine the worst case scenario which causes the most harmful loss in loan portfolios. This method has three advantages over traditional macro...

Using sectorial indices of the Brazilian market, we compare the portfolio optimization approach known as risk parity with minimum variance and equally weighted approaches. We apply various estimators for the covariance matrix to each portfolio strategy, since portfolio variance is considered as...

The paper compares three portfolio optimization models. Modern portfolio theory (MPT) is a short-horizon volatility model. The relevant time horizon is the sampling interval. MPT is myopic and implies that investors are not concerned with long-term variance or mean-reversion. Intertemporal...

We assess the ability of minimum-variance portfolio allocation strategies accounting for time-varying correlation between assets to provide performance benefits relative to an equally-weighted portfolio. Prior to transaction costs correlation-based strategies emphatically outperform the...

We compare the equal-weight naive 1/N portfolio with mean-variance strategies from the perspective of mispricing (alpha) and provide three new findings. First, we analytically show that the 1/N rule approaches the ex ante mean-variance efficient portfolio in the absence of mispricing. With...