Finance and Economics

Forecasting conceivable interest rate market scenarios and significant losses on interest rate portfolios using mathematical optimization

  • Katsuhiro Tanaka
    • Categories Constrained Nonlinear Optimization, Finance and Economics Tags , , , , ,

    This study proposes a mathematical optimization programming model that simultaneously forecasts interest rate market scenarios and significant losses on interest rate market portfolios. The model includes three main components. A constraint condition is set using the Mahalanobis distance, which consists of innovation terms in a dynamic conditional correlation-generalized autoregressive conditional heteroscedasticity (DCC-GARCH) model that represent … Read more

    A Scalable Algorithm for Sparse Portfolio Selection

  • Dimitris Bertsimas
  • Ryan Cory-Wright
    • Categories Cutting Plane Approaches, Finance and Economics, Quadratic Programming Tags , ,

    The sparse portfolio selection problem is one of the most famous and frequently-studied problems in the optimization and financial economics literatures. In a universe of risky assets, the goal is to construct a portfolio with maximal expected return and minimum variance, subject to an upper bound on the number of positions, linear inequalities and minimum … Read more

    Sparse Mean-Reverting Portfolios via Penalized Likelihood Optimization

  • Aleksandr Y. Aravkin
  • Tim Leung
  • Jize Zhang
    • Categories Constrained Nonlinear Optimization, Finance and Economics Tags , ,

    An optimization approach is proposed to construct sparse portfolios with mean-reverting price behaviors. Our objectives are threefold: (i) design a multi-asset long-short portfolio that best fits an Ornstein-Uhlenbeck process in terms of maximum likelihood, (ii) select portfolios with desirable characteristics of high mean reversion and low variance though penalization, and (iii) select a parsimonious portfolio … Read more

    Strictly and Γ-Robust Counterparts of Electricity Market Models: Perfect Competition and Nash-Cournot Equilibria

  • Anja Kramer
  • Vanessa Krebs
  • Martin Schmidt
    • Categories Finance and Economics, Game Theory, Robust Optimization Tags , , , ,

    This paper mainly studies two topics: linear complementarity problems for modeling electricity market equilibria and optimization under uncertainty. We consider both perfectly competitive and Nash–Cournot models of electricity markets and study their robustifications using strict robustness and the Γ-approach. For three out of the four combinations of economic competition and robustification, we derive algorithmically tractable … Read more

    Multistage stochastic programs with a random number of stages: dynamic programming equations, solution methods, and application to portfolio selection

  • Vincent Guigues
    • Categories Finance and Economics, Stochastic Programming

    We introduce the class of multistage stochastic optimization problems with a random number of stages. For such problems, we show how to write dynamic programming equations and detail the Stochastic Dual Dynamic Programming algorithm to solve these equations. Finally, we consider a portfolio selection problem over an optimization period of random duration. For several instances … Read more

    On stochastic auctions in risk-averse electricity markets with uncertain supply

  • Ryan Cory-Wright
  • Golbon Zakeri
    • Categories Finance and Economics, Game Theory, Stochastic Programming Tags , , ,

    This paper studies risk in a stochastic auction which facilitates the integration of renewable generation in electricity markets. We model market participants who are risk averse and reflect their risk aversion through coherent risk measures. We uncover a closed-form characterization of a risk-averse generator’s optimal pre-commitment behaviour for a given real-time policy, both with and … Read more

    Generalization Bounds for Regularized Portfolio Selection with Market Side Information

  • Thierry Bazier-Matte
  • Erick Delage
    • Categories Applications - OR and Management Sciences, Finance and Economics

    Drawing on statistical learning theory, we derive out-of-sample and suboptimal guarantees about the investment strategy obtained from a regularized portfolio optimization model which attempts to exploit side information about the financial market in order to reach an optimal risk-return tradeoff. This side information might include for instance recent stock returns, volatility indexes, financial news indicators, … Read more

    Nonconvex Equilibrium Models for Gas Market Analysis: Failure of Standard Techniques and Alternative Modeling Approaches

  • Veronika Grimm
  • Julia Grübel
  • Lars Schewe
  • Martin Schmidt
  • Gregor Zöttl
    • Categories Applications - OR and Management Sciences, Finance and Economics, Nonlinear Optimization Tags , , , , ,

    This paper provides a first approach to assess gas market interaction on a network with nonconvex flow models. In the simplest possible setup that adequately reflects gas transport and market interaction, we elaborate on the relation of the solution of a simultaneous competitive gas market game, its corresponding mixed nonlinear complementarity problem (MNCP), and a … Read more

    Portfolio Optimization with Entropic Value-at-Risk

  • Ahmadi-Javid Amir
  • Fallah-Tafti Malihe
    • Categories Constrained Nonlinear Optimization, Finance and Economics, Stochastic Programming

    The entropic value-at-risk (EVaR) is a new coherent risk measure, which is an upper bound for both the value-at-risk (VaR) and conditional value-at-risk (CVaR). As important properties, the EVaR is strongly monotone over its domain and strictly monotone over a broad sub-domain including all continuous distributions, while well-known monotone risk measures, such as VaR and … Read more

    Membership testing for Bernoulli and tail-dependence matrices

  • Daniel Krause
  • Jonas Schwinn
  • Ralf Werner
  • Matthias Scherer
    • Categories Finance and Economics, Linear Programming, Statistics Tags , , ,

    Testing a given matrix for membership in the family of Bernoulli matrices is a longstanding problem, the many applications of Bernoulli vectors in computer science, finance, medicine, and operations research emphasize its practical relevance. A novel approach towards this problem was taken by [Fiebig et al., 2017] for lowdimensional settings d