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
The article describes approximation technique for solving multiobjective stochastic optimization problems. As a generalized model of a stochastic system to be optimized a vector “input — random output” system is used. Random outputs are converted into a vector of deterministic performance/risk indicators. The problem is to find those inputs that correspond to Pareto-optimal values of … Read more
The portfolio optimization model has limited impact in practice due to estimation issues when applied with real data. To address this, we adapt two machine learning methods, regularization and cross-validation, for portfolio optimization. First, we introduce performance-based regularization (PBR), where the idea is to constrain the sample variances of the estimated portfolio risk and return, … Read more
For index-based hedging design, the scatter plot of the hedging contract losses versus the losses to be hedged is generally used to visualize and quantify basis risk. While studying this scatter plot, which does not cluster along the diagonal as desired, a “bundled loss” phenomenon is found. In a setting where both the hedging and … Read more
We consider a problem where an investment manager must allocate an available budget among a set of fund managers, whose asset allocations are not precisely known to the investment manager. In this paper, we propose a robust framework that takes into account the uncertainty stemming from the fund managers’ allocation, as well as the more … Read more
We develop a stochastic model of zonal/regional electricity prices, designed to reflect information in fuel forward curves and aggregated capacity and load as well as zonal or regional price spreads. We use a nonparametric model of the supply stack that captures heat rates and fuel prices for all generators in the market operator territory, combined … Read more
Insurance-linked securities portfolio with the VaR constraint optimization problem have a kind of weak dominance or ordering property, which enables us to reduce the variables’ dimensions gradually through exercising a genetic algorithm with randomly selected initial populations. This property also enables us to add boundary attraction potential to GA-MPC’s repair operator, among other modifications such … Read more
This paper develops a robust optimization based decision-making framework using a nonparametric perturbation of a reference utility function. The perturbation preserves the risk-aversion property but solves the problem of ambiguity and inconsistency in eliciting the reference utility function. We study the topology of the perturbation, and show that in the decision-making framework the price of … Read more
The risk parity optimization problem aims to find such portfolios for which the contributions of risk from all assets are equally weighted. Portfolios constructed using risk parity approach are a compromise between two well-known diversification techniques: minimum variance optimization approach and the equal weighting approach. In this paper, we discuss the problem of finding portfolios … Read more
In this paper we show that for concave piecewise linear exchange economies every competitive equilibrium satisfies the property that the competitive allocation is a non-symmetric Nash bargaining solution with weights being the initial income of individual agents evaluated at the equilibrium price vector. We prove the existence of competitive equilibrium for concave piecewise linear exchange … Read more