Recent years have seen increased demand from institutional investors for passive replication products that track the performance of hedge fund strategies. We find that, in practice, linear replication methods routinely suffer from poor tracking performance and high turnover. To address these concerns, we propose a model combination approach to index replication that pools information from a div...

In this paper we present a framework, i.e. a concept and design as well as results with a prototypical implementation of a metaheuristic-based decision support system PM-DSS c © for portfolio optimization and managing investment guidelines. PM-DSS c © can be used for active as well as passive fund management. 1 The general problem In this paper we present a framework, i.e. a concept and design ...

Portfolios are constructed to increase returns and manage risk. In high-risk investment strategies, central measures of risk must be complemented with tail measures of risk. An unanticipated event impacting securities of one firm can contagiously affect those of other firms through a contagion flow process. The connections between firms due to a variety of factors can spread the contagion, and ...

For determining an optimal portfolio allocation, parameters representing the underlying market – characterized by expected asset returns and the covariance matrix – are needed. Traditionally, these point estimates for the parameters are obtained from historical data samples, but as experts often have strong opinions about (some of) these values, approaches to combine sample information and expe...

We focus on affine term structure models as tools for active bond portfolio management. We use multi-factor term structure models to produce forecasts for the future values of the state variables. Starting from the conditional moments of the state vector implied by the models, we introduce binomial approximations to come up with discrete scenarios for the future state variables. From the theore...

Modern asset pricing theory generally assumes frictionless trading. Under this assumption, an investor would revise his portfolio holdings at every date on which he could trade. However, in models where an investor faces financial market frictions such as transactions costs, the portfolio is optimally rebalanced less frequently. This paper examines the portfolio trading problem for an investor ...

Recent experience in capital markets has highlighted the need for risk-sensitive portfolio strategies in both domestic investment grade as well as opportunistic high-yield and emerging market portfolios. We have previously developed a fixed-income sector optimization methodology to facilitate tradeoffs between various sectors based on their contribution to the total portfolio return and risk. W...

We propose an anytime algorithm portfolio technique which allocates computational resources among sets of control parameter value settings for evolutionary algorithms. Meta-level optimization of the portfolios is enabled by applying a bootstrap sampling approach to a database of individual algorithm performance on instances from a problem distribution. Experiments with a genetic algorithm portf...

One of the major issues for Markowitz mean–variance model is the errors in estimations cause ‘‘corner solutions’’ and low diversity in the portfolio. In this paper, we compare the mean–variance efficiency, realized portfolio values, and diversity of the models incorporating different entropy measures by applying multiple criteria method. Differing from previous studies, we evaluate twenty-three...

The present paper investigates the portfolio allocation decisions of an investor with infinite horizon when available financial assets differ in their degrees of liquidity. A model with risk neutral agents allows us to endogenously determine the liquidity premium. With risk averse agents, we develop a nontrivial portfolio allocation problem, which enables us to calculate the demand for an illiq...