In the paper we introduce an empirical approximation of the log-optimal investment strategy that guarantees an almost optimal growth rate of investments. The proposed strategy also considers the effects of portfolio rearrangement costs on growth optimality and advises a suboptimal portfolio for...

A concise look in three unrelated, yet complex environments reveals a strong human dependence on the recognition heuristic. Its marketability to the mind as a good decision making tool (over other complex approaches), is shown to be almost innate and ultimately successful. The three...

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...

For a market with m assets and T discrete trading sessions, Cover and Ordentlich (1998) found that the “Cost of Achieving the Best Rebalancing Rule in Hindsight” is p(T, m) = _{n₁ ···^Σ n_m=T} (n₁,^T...,n_m)(n₁/T)(n₁ · · · (n_m/T)^n_m. Their super-replicating strategy is impossible to compute...

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 build regression trees to determine which firm characteristics are most likely to drive future returns. Out of 30 attributes, those related to momentum appear to have, by far, the most marked impact. This prominence is verified at the sector level as well. The second order effects are...

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...

We study the impact of liquidity in optimal portfolio choice under leveraging to improve risk-adjusted and absolute returns. We consider a quasi-elastic market with continuous trading where temporary liquidity costs are sufficiently large relative to permanent impact. We show analytically that...

All the financial practitioners are working in incomplete markets full of unhedgeable risk-factors. Making the situation worse, they are only equipped with the imperfect information on the relevant processes. In addition to the market risk, fund and insurance managers have to be prepared for...

This paper examines the proportion of wealth invested in stock and bond portfolios as a function of the investors' age, i.e., investment horizon. It has become increasingly popular to advice investors to relocate their funds from a primarily stock portfolio to a primarily bond portfolio as they...