A typical decision problem faced by investors is whether or not to include additional asset classes or return drivers into their portfolios. In the context of classical portfolio theory and in the presence of a riskless asset, the relevant criterion is a significant increase in the maximum...

Between September 6, 2011, and January 15, 2015, the Swiss National Bank (SNB) enforced a lower bound of 1.20 on the CHF/EUR exchange rate. In this paper, we view the SNB's commitment to this lower bound as a put option and use a latent likelihood estimation approach to infer (a) where the...

Ledermann et al. (2011) propose random orthogonal matrix (ROM) simulation for generating multivariate samples matching means and covariances exactly. Its computational efficiency compared to standard Monte Carlo methods makes it an interesting alternative. In this paper we enhance this method's...

We derive no-arbitrage bounds for expected excess returns to generate scenarios used in financial optimization. The bounds allow to distinguish three regions: one where arbitrage opportunities will never exist, a second where arbitrage may be present, and a third, where arbitrage opportunities...

We compare two popular scenario tree generation methods in the context of financial optimization: Moment matching and scenario reduction. Using a simple problem with a known analytic solution, we find that moment matching, when accompanied by a check to ensure the absence of arbitrage...