Stochastic optimization identifies the asset allocation that minimizes the probability of exhausting the retirement portfolio, thereby minimizing risk, from unmanaged (constant) and optimally managed withdrawals over the retirement life span. Optimal equity compositions and minimized probabilities of prematurely exhausting the portfolio increase with higher withdrawal rates and earlier retireme...

Extreme losses of portfolios with heavy-tailed components are studied in the framework of multivariate regular variation. Asymptotic distributions of extreme portfolio losses are characterized by a functional γξ = γξ(Ψ, α) of the tail index α, the spectral measure Ψ, and the vector ξ of portfolio weights. Existence, uniqueness, and location of the optimal portfolio are analysed and applied to t...

We develop asset pricing models' implications for portfolio efficiency when there is conditioning information in the form of a set of lagged instruments. A model of expected returns identifies a portfolio that should be minimum variance efficient with respect to the conditioning information. Our framework refines previous tests of portfolio efficiency by using a given set of conditioning inform...

This study aimed to present a model for portfolio risk premium assessment of companies listed in Tehran Stock Exchange. In order to achieve this purpose, monthly data of 150 companies listed in Tehran Stock Exchange during 2007-2017 was used. In this study, the predictive powers of FamaFrench three-factor model [11], Carhart four-factor model [1], Fama - French five-factor model [24], Brousseau...

We consider the problem of portfolio optimization in the presence of market impact, and derive optimal liquidation strategies. We discuss in detail the problem of finding the optimal portfolio under Expected Shortfall (ES) in the case of linear market impact. We show that, once market impact is taken into account, a regularized version of the usual optimization problem naturally emerges. We cha...

The growth-optimal portfolio optimization strategy pioneered by Kelly is based on constant portfolio rebalancing which makes it sensitive to transaction fees. We examine the effect of fees on an example of a risky asset with a binary return distribution and show that the fees may give rise to an optimal period of portfolio rebalancing. The optimal period is found analytically in the case of log...

The question of optimal portfolio is addressed. The conventional Markowitz portfolio optimisation is discussed and the shortcomings due to non-Gaussian security returns are outlined. A method is proposed to minimise the likelihood of extreme non-Gaussian drawdowns of the portfolio value. The theory is called leptokurtic, because it minimises the effects from ”fat tails” of returns. The leptokur...

In this work introduce an adaptive method of portfolio optimization. The basic idea is to describe essential movements of the stock price using a hidden Markov model and to calculate the optimal portfolio using a recursive algorithm. The portfolio optimization is adaptive in the sense that the standard EM–algorithm fits the model to historical data, which improves the portfolio performance.

We discuss a class of risk-sensitive portfolio optimization problems. We consider the portfolio optimization model investigated by Nagai in 2003. The model by its nature can include fixed income securities as well in the portfolio. Under fairly general conditions, we prove the existence of optimal portfolio in both finite and infinite horizon problems.

In the presence of skewness, portfolio selection requires to consider competing and conflicting objectives. We utilize polynomial goal programming to determine the optimal portfolio from emerging markets industries. The first part of this paper is concerned with an industry level analysis of the effects of portfolio selection when the skewness is taken into account. The second part of the paper...