Finance and Economics

Risk-averse portfolio selection of renewable electricity generator investments in Brazil: An optimised multi-market commercialisation strategy

  • Sebastian Maier
  • Kenneth McKinnon
  • Alexandre Street
    • Categories Applications - Science and Engineering, Finance and Economics, Stochastic Programming Tags , , , ,

    Investment decisions in renewable energy sources such as small hydro, wind power, biomass and solar are frequently made in the context of enormous uncertainty surrounding both intermittent generation and the highly volatile electricity spot prices that are used for clearing of trades. This paper presents a new portfolio-based approach for selecting long-term investments in small-scale … Read more

    Estimating Portfolio Loss Probabilities with Optimal Risk Loading Coefficients and Fixed Dependency among Obligors

  • Ioannis G. Akrotirianakis
  • Amit Chakraborty
  • Xi He
    • Categories Finance and Economics Tags , ,

    We consider the problem of measuring risk of a portfolio com- prising loans, bonds, and financial instruments, which is caused by possible default of its obligors. Specifically, we are interested in esti- mating probability that a portfolio incurs large loss over a fixed time horizon. One crucial concern of such problem is how to measure … Read more

    Robust Numerical Calibration for Implied Volatility Expansion Models

  • Radu Baltean-Lugojan
  • Panos Parpas
    • Categories Finance and Economics, Nonlinear Systems and Least-Squares, Systems governed by Differential Equations Optimization Tags , , ,

    Implied volatility expansions allow calibration of sophisticated volatility models. They provide an accurate fit and parametrization of implied volatility surfaces that is consistent with empirical observations. Fine-grained higher order expansions offer a better fit but pose the challenge of finding a robust, stable and computationally tractable calibration procedure due to a large number of market … Read more

    Uniqueness of Market Equilibrium on a Network: A Peak-Load Pricing Approach

  • Veronika Grimm
  • Lars Schewe
  • Martin Schmidt
  • Gregor Zöttl
    • Categories Convex Optimization, Finance and Economics, Network Optimization Tags , , ,

    In this paper we establish conditions under which uniqueness of market equilibrium is obtained in a setup where prior to trading of electricity, transmission capacities between different market regions are fixed. In our setup, firms facing fluctuating demand decide on the size and location of production facilities. They make production decisions constrained by the invested … Read more

    Multi-period fund performance evaluation: A dynamic network DEA approach with diversification and the directional distance function

  • Zhiping Chen
  • Qianhui Hu
  • Ruiyue Lin
    • Categories Finance and Economics

    When analyzing the relative performance of mutual funds, current data envelopment analysis (DEA) models with diversification only consider risks and returns over the entire investment process, which ignore the performance change in consecutive periods. This paper introduces a novel multi-period network DEA approach with diversification and the directional distance function. The new approach decomposes the … Read more

    Penalty PALM Method for Cardinality Constrained Portfolio Selection Problems

  • Xiaoliang Song
  • Yue Teng
  • Li Yang
  • Bo Yu
    • Categories Constrained Nonlinear Optimization, Finance and Economics, Nonsmooth Optimization

    For reducing costs of market frictions, investors need to build a small-scale portfolio by solving a cardinality constrained portfolio selection problem which is NP-hard in general and not easy to be solved eciently for a large-scale problem. In this paper, we propose a penalty proximal alternat- ing linearized minimization method for the large-scale problems in … Read more

    Transmission and Generation Investment in Electricity Markets: The Effects of Market Splitting and Network Fee Regimes

  • Veronika Grimm
  • Martin Schmidt
  • Alexander Martin
  • Weibelzahl Martin
  • Gregor Zöttl
    • Categories (Mixed) Integer Nonlinear Programming, Finance and Economics, Network Optimization Tags , , , , ,

    We propose an equilibrium model that allows to analyze the long-run impact of the regulatory environment on transmission line expansion by the regulator and investment in generation capacity by private firms in liberalized electricity markets. The model incorporates investment decisions of the transmission operator and private firms in expectation of an energy-only market and cost-based … Read more

    Multi-period portfolio optimization with alpha decay

  • Vishv Jeet
  • Kartik Krishnan Sivaramakrishnan
  • Dieter Vandenbussche
    • Categories Finance and Economics Tags , ,

    The traditional Markowitz MVO approach is based on a single-period model. Single period models do not utilize any data or decisions beyond the rebalancing time horizon with the result that their policies are {\em myopic} in nature. For long-term investors, multi-period optimization offers the opportunity to make {\em wait-and-see} policy decisions by including approximate forecasts … Read more

    Alternating direction methods for non convex optimization with applications to second-order least-squares and risk parity portfolio selection

  • Xi Bai
  • Katya Scheinberg
    • Categories Finance and Economics, Nonlinear Optimization, Nonlinear Systems and Least-Squares Tags , , , , ,

    In this paper we mainly focus on optimization of sums of squares of quadratic functions, which we refer to as second-order least-squares problems, subject to convex constraints. Our motivation arises from applications in risk parity portfolio selection. We generalize the setting further by considering a class of nonlinear, non convex functions which admit a (non … Read more

    Facing an Arbitrage Opportunity: Trade or Wait?

  • Yongpei Guan
  • Robert Jarrow
  • Haitao Li
  • Lai Wei
    • Categories Applications - OR and Management Sciences, Finance and Economics Tags , , ,

    In traditional thinking, an arbitrageur will trade immediately once an arbitrage opportunity appears. Is this the best strategy for the arbitrageur or it is even better to wait for the best time to trade so as to achieve the maximum pro fit? To answer this question, this paper studies the optimal trading strategies of an arbitrageur … Read more