Optimal Portfolio Choice With Dynamic Asymmetric Correlations And Transaction Constraints
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| Author | : Letian Ding |
| Publisher | : |
| Total Pages | : 25 |
| Release | : 2010 |
| Genre | : |
| ISBN | : |
This paper develops a framework for constructing portfolios with superior out-of-sample performance in the presence of estimation errors. Our framework relies on solving the classical mean-variance problem with dynamic portfolio rebalancing at a comparatively-high frequency level. With the employment of A-DCC GARCH model, we found that the usage of turnover constraints will tend to enhance the performance of the portfolios sufficiently high to overcome transaction costs in practice. For a long-only optimal portfolio based on a linear combination of two different strategies we find a return exceeding 51% per annual with annual volatility equal to 35% over the 1998-2007 period. We argue that the advantage of our framework comes from the mean-reverting nature of the stock market and the impact of the estimation errors in high frequency level. Our works indicate that one can successfully move from ordinary monthly or weekly adjusting strategies to high frequency and dynamic asset management without the significant increase of transaction costs.
| Author | : Ciamac C. Moallemi |
| Publisher | : |
| Total Pages | : 59 |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
We consider a broad class of dynamic portfolio optimization problems that allow for complex models of return predictability, transaction costs, trading constraints, and risk considerations. Determining an optimal policy in this general setting is almost always intractable. We propose a class of linear rebalancing rules, and describe an efficient computational procedure to optimize with this class. We illustrate this method in the context of portfolio execution, and show that it achieves near optimal performance. We consider another numerical example involving dynamic trading with mean-variance preferences and demonstrate that our method can result in economically large benefits.
| Author | : Andrea Buraschi |
| Publisher | : |
| Total Pages | : 58 |
| Release | : 2009 |
| Genre | : |
| ISBN | : |
We develop a new framework for intertemporal portfolio choice when the covariance matrix of returns is stochastic. An important contribution of this framework is that it allows to derive optimal portfolio implications for economies in which the degree of correlation across different industries, countries, and asset classes is time-varying and stochastic. In this setting, markets are incomplete and optimal portfolios include distinct hedging components against both stochastic volatility and correlation risk. The model gives rise to simple optimal portfolio solutions that are available in closed-form. We use these solutions to investigate, in several concrete applications, the properties of the optimal portfolios. We find that the hedging demand is typically four to five times larger than in univariate models and it includes an economically significant correlation hedging component, which tends to increase with the persistence of variance covariance shocks, the strength of leverage effects and the dimension of the investment opportunity set. These findings persist also in the discrete-time portfolio problem with short-selling or VaR constraints.
| Author | : Compiled by the British Library of Political and Economic Science |
| Publisher | : Routledge |
| Total Pages | : 675 |
| Release | : 2013-05-13 |
| Genre | : Business & Economics |
| ISBN | : 1134340036 |
First published in 1952, the International Bibliography of the Social Sciences (anthropology, economics, political science, and sociology) is well established as a major bibliographic reference for students, researchers and librarians in the social sciences worldwide. Key features * Authority: Rigorous standards are applied to make the IBSS the most authoritative selective bibliography ever produced. Articles and books are selected on merit by some of the world's most expert librarians and academics. *Breadth: today the IBSS covers over 2000 journals - more than any other comparable resource. The latest monograph publications are also included. *International Coverage: the IBSS reviews scholarship published in over 30 languages, including publications from Eastern Europe and the developing world. *User friendly organization: all non-English titles are word sections. Extensive author, subject and place name indexes are provided in both English and French. Place your standing order now for the 2003 volumes of the the IBSS Anthropology: 2002 Vol.48 December 2003: 234x156: Hb: 0-415-32634-6: £195.00 Economics: 2002 Vol.51 December 2003: 234x156: Hb: 0-415-32635-4: £195.00 Political Science: 2002 Vol.51 December 2003: 234x156: Hb: 0-415-32636-2: £195.00 Sociology: 2002 Vol.52 December 2003: 234x156: Hb: 0-415-32637-0: £195.00
| Author | : Huamao Wang |
| Publisher | : |
| Total Pages | : 480 |
| Release | : 2010 |
| Genre | : |
| ISBN | : |
We develop and analyze a model of optimal portfolio choice with a finite time horizon T. The investor's objective is to maximize the expected utility of termi- nal wealth based on partial information generated by stock prices. Rebalancing the portfolio composed of a stock and a bank account incurs transaction costs. This thesis extends the literature by examining the joint impact of partial in- formation and transaction costs on investors' decisions and expected utilities. After estimating the uncertain drift from historical prices, an investor up- dates the estimate over [0, T] based on partial information. This investor learns about the drift with the Kalman-Bucy filter, which provides a statistically op- timal estimate. Three regions of the state space with two free boundaries char- acterize the optimal portfolio strategy. A numerical algorithm using dynamic programming and a Markov chain approximation solves the model. The ex- isting algorithm with known parameters is time consuming and liable to cause underflow or overflow of the range of values represented. We propose four im- provements to overcome the drawbacks. The algorithm with modifications can be applied to the model under partial information according to the separation principle. We define two measures to quantify the losses in utility caused by partial information and transaction costs. Four quantities are introduced to describe investors' trading behaviours. With simulations of stock prices and the drift, the comparative analysis of five market parameters reveals the properties of the model and tests the robustness of the algorithm. Compared with the investors who use erroneous estimates of the drift, the learning investor's portfolio hold- ings are close to the informed investor's portfolio holdings. The average cost per transaction to the learning investor is the lowest. This investor has these benefits because the filter reduces uncertainty. We discuss the implications for practitioners to highlight the practical contributions of this research. KEY WORDS: investment; portfolio choice; parameter uncertainty; transaction costs; dynamic programming.
| Author | : Compiled by the British Library of Political and Economic Science |
| Publisher | : Psychology Press |
| Total Pages | : 676 |
| Release | : 2003 |
| Genre | : Economics |
| ISBN | : 0415326354 |
IBSS is the essential tool for librarians, university departments, research institutions and any public or private institution whose work requires access to up-to-date and comprehensive knowledge of the social sciences.
| Author | : Stephen Boyd |
| Publisher | : |
| Total Pages | : 92 |
| Release | : 2017-07-28 |
| Genre | : Mathematics |
| ISBN | : 9781680833287 |
This monograph collects in one place the basic definitions, a careful description of the model, and discussion of how convex optimization can be used in multi-period trading, all in a common notation and framework.
| Author | : |
| Publisher | : |
| Total Pages | : |
| Release | : |
| Genre | : |
| ISBN | : |
We develop a new framework for multivariate intertemporal portfolio choice that allows us to derive optimal portfolio implications for economies in which the degree of correlation across industries, countries, or asset classes is stochastic. Optimal portfolios include distinct hedging components against both stochastic volatility and correlation risk. We find that the hedging demand is typically larger than in univariate models, and it includes an economically significant covariance hedging component, which tends to increase with the persistence of variance-covariance shocks, the strength of leverage effects, the dimension of the investment opportunity set, and the presence of portfolio constraints.
| Author | : Renata Mansini |
| Publisher | : Springer |
| Total Pages | : 131 |
| Release | : 2015-06-10 |
| Genre | : Business & Economics |
| ISBN | : 3319184822 |
This book presents solutions to the general problem of single period portfolio optimization. It introduces different linear models, arising from different performance measures, and the mixed integer linear models resulting from the introduction of real features. Other linear models, such as models for portfolio rebalancing and index tracking, are also covered. The book discusses computational issues and provides a theoretical framework, including the concepts of risk-averse preferences, stochastic dominance and coherent risk measures. The material is presented in a style that requires no background in finance or in portfolio optimization; some experience in linear and mixed integer models, however, is required. The book is thoroughly didactic, supplementing the concepts with comments and illustrative examples.
| Author | : Wayne Ferson |
| Publisher | : MIT Press |
| Total Pages | : 497 |
| Release | : 2019-03-12 |
| Genre | : Business & Economics |
| ISBN | : 0262039370 |
An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments. This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. The focus is empirical, emphasizing how the models relate to the data. The book offers a uniquely integrated treatment, combining classical foundations with more recent developments in the literature and relating some of the material to applications in investment management. It covers the theory of empirical asset pricing, the main empirical methods, and a range of applied topics. The book introduces the theory of empirical asset pricing through three main paradigms: mean variance analysis, stochastic discount factors, and beta pricing models. It describes empirical methods, beginning with the generalized method of moments (GMM) and viewing other methods as special cases of GMM; offers a comprehensive review of fund performance evaluation; and presents selected applied topics, including a substantial chapter on predictability in asset markets that covers predicting the level of returns, volatility and higher moments, and predicting cross-sectional differences in returns. Other chapters cover production-based asset pricing, long-run risk models, the Campbell-Shiller approximation, the debate on covariance versus characteristics, and the relation of volatility to the cross-section of stock returns. An extensive reference section captures the current state of the field. The book is intended for use by graduate students in finance and economics; it can also serve as a reference for professionals.
