Low-Rank Covariance Matrix Estimation for Factor Analysis in Anisotropic Noise: Application to Array Processing and Portfolio Selection

Improved Estimation of the Covariance Matrix of Stock Returns With an Application to Portfolio Selection

This paper proposes to estimate the covariance matrix of stock returns by an optimally weighted average of two existing estimators: the sample covariance matrix and single-index covariance matrix. This method is generally known as shrinkage, and it is standard in decision theory and in empirical Bayesian statistics. Our shrinkage estimator can be seen as a way to account for extra-market covari...

CREDIBILISTIC PARAMETER ESTIMATION AND ITS APPLICATION IN FUZZY PORTFOLIO SELECTION

In this paper, a maximum likelihood estimation and a minimum entropy estimation for the expected value and variance of normal fuzzy variable are discussed within the framework of credibility theory. As an application, a credibilistic portfolio selection model is proposed, which is an improvement over the traditional models as it only needs the predicted values on the security returns instead of...

Estimation of Covariance Matrix in Signal Processing When the Noise Covariance Matrix is Arbitrary

Optimal Portfolio Selection with Singular Covariance Matrix

In this paper we use the Moore-Penrose inverse in the case of a close to singular and ill-conditioned, or singular variance-covariance matrix, in the classic Portfolio Selection Problem. In this way the possible singularity of the variance-covariance matrix is tackled in an efficient way so that the various application of the Problem to benefit from the numerical tractability of the Moore-Penro...

Covariance Matrix Estimation using an Errors-in-Variables Factor Model with Applications to Portfolio Selection and a Deregulated Electricity Market

We propose an errors-in-variables factor model which extends the classical capital asset pricing model (CAPM) to the case where the market returns contain additive noise. Using the model, we propose a method for choosing portfolios of assets, such as U.S. stocks in the S&P 100 and virtual electricity contracts in a regional transmission organization. Virtual electricity contracts relate real-ti...