We consider a group of mean-variance investors with mimicking desire such that each investor is willing to penalize deviations of his portfolio composition from compositions of other group members. Penalizing norm constraints are already applied for statistical improvement of Markowitz portfolio procedure in order to cope with estimation risk. We relate these penalties to individuals’ wish of s...

Using the language of convex analysis we describe key results in several important areas of finance: portfolio theory, financial derivative trading and pricing and consumption based asset pricing theory. We hope to emphasize the importance of convex analysis in financial mathematics and also bring attention to researchers in convex analysis interesting issues in financial applications.

Domestic investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest, a phenomenon called "equity home bias." In the absence of this bias, investors would optimally diversify domestic output risk using foreign equities. Therefore, consumption growth rates would tend to comove across countries even when output growth...

In this article we have reviewed ``Modern Portfolio Analysis'' and outlined some important topics for further research. Issues discussed include the history and future of portfolio theory, the key inputs necessary to perform portfolio optimization, speci®c problems in applying portfolio theory to ®nancial institutions, and the methods for evaluating how well portfolios are managed. Emphasis is ...

International asset demands are functions of expected returns. Optimal portfolio theory tells us that the coetlicients in this relationship depend on the variance-covariance matrix of real returns. But previous estimates of the optimal portfolio (1) assume expected returns constant and (2) are not set up to test the hypothesis of mean-variance optimization. We use maximum likelihood estimation ...

Stakeholders in the science system need to decide where to place their bets. Example questions include: Which areas of research should get more funding? Who should we hire? Which projects should we abandon and which new projects should we start? Making informed choices requires knowledge about these research options. Unfortunately, to date research portfolio options have not been defined in a c...

Let X ∈ R denote a random stock market return vector, where Xj is the value of a one unit investment in stock j at the end of the trading day. We require that Xj ≥ 0 for j = 1, 2, . . . , m, that is, an investor cannot lose more than the invested capital. Let b, bj ≥ 0, ∑m j=1 bj = 1, denote a portfolio, that is, an allocation of investor’s capital across the investment alternatives. Let B deno...

discussion recently about life-cycle funds and their role in providing a secure retirement income for older Americans. These funds, which gradually shift account assets from broad-based stock funds to bond funds as a participant ages, are becoming an important vehicle for retirement savings. This policy brief explores the economic rationale behind the life-cycle approach and the advantages and ...