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## Correlation, hierarchies, and networks in financial markets

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Publicado em 26/09/2008
Português

Relevância na Pesquisa

45.7%

#Quantitative Finance - Statistical Finance#Physics - Data Analysis, Statistics and Probability#Physics - Physics and Society#Quantitative Finance - Portfolio Management

We discuss some methods to quantitatively investigate the properties of
correlation matrices. Correlation matrices play an important role in portfolio
optimization and in several other quantitative descriptions of asset price
dynamics in financial markets. Specifically, we discuss how to define and
obtain hierarchical trees, correlation based trees and networks from a
correlation matrix. The hierarchical clustering and other procedures performed
on the correlation matrix to detect statistically reliable aspects of the
correlation matrix are seen as filtering procedures of the correlation matrix.
We also discuss a method to associate a hierarchically nested factor model to a
hierarchical tree obtained from a correlation matrix. The information retained
in filtering procedures and its stability with respect to statistical
fluctuations is quantified by using the Kullback-Leibler distance.; Comment: 37 pages, 9 figures, 3 tables

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## Double Whammy - How ICT Projects are Fooled by Randomness and Screwed by Political Intent

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Publicado em 16/04/2013
Português

Relevância na Pesquisa

45.74%

The cost-benefit analysis formulates the holy trinity of objectives of
project management - cost, schedule, and benefits. As our previous research has
shown, ICT projects deviate from their initial cost estimate by more than 10%
in 8 out of 10 cases. Academic research has argued that Optimism Bias and Black
Swan Blindness cause forecasts to fall short of actual costs. Firstly, optimism
bias has been linked to effects of deception and delusion, which is caused by
taking the inside-view and ignoring distributional information when making
decisions. Secondly, we argued before that Black Swan Blindness makes
decision-makers ignore outlying events even if decisions and judgements are
based on the outside view. Using a sample of 1,471 ICT projects with a total
value of USD 241 billion - we answer the question: Can we show the different
effects of Normal Performance, Delusion, and Deception? We calculated the
cumulative distribution function (CDF) of (actual-forecast)/forecast. Our
results show that the CDF changes at two tipping points - the first one
transforms an exponential function into a Gaussian bell curve. The second
tipping point transforms the bell curve into a power law distribution with the
power of 2. We argue that these results show that project performance up to the
first tipping point is politically motivated and project performance above the
second tipping point indicates that project managers and decision-makers are
fooled by random outliers...

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## Value-Based Inventory Management

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Publicado em 16/01/2013
Português

Relevância na Pesquisa

55.6%

The basic financial purpose of a firm is to maximize its value. An inventory
management system should also contribute to realization of this basic aim. Many
current asset management models currently found in financial management
literature were constructed with the assumption of book profit maximization as
basic aim. However these models could lack what relates to another aim, i.e.,
maximization of enterprise value. This article presents a modified value-based
inventory management model.; Comment: no coments

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## Why Indexing Works

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Publicado em 13/10/2015
Português

Relevância na Pesquisa

45.74%

We develop a simple stock selection model to explain why active equity
managers tend to underperform a benchmark index. We motivate our model with the
empirical observation that the best performing stocks in a broad market index
perform much better than the other stocks in the index. While randomly
selecting a subset of securities from the index increases the chance of
outperforming the index, it also increases the chance of underperforming the
index, with the frequency of underperformance being larger than the frequency
of overperformance. The relative likelihood of underperformance by investors
choosing active management likely is much more important than the loss to those
same investors of the higher fees for active management relative to passive
index investing. Thus, the stakes for finding the best active managers may be
larger than previously assumed.; Comment: 5 Pages, 1 Figure

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## A liability tracking approach to long term management of pension funds

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Publicado em 16/03/2013
Português

Relevância na Pesquisa

55.57%

We propose a long term portfolio management method which takes into account a
liability. Our approach is based on the LQG (Linear, Quadratic cost, Gaussian)
control problem framework and then the optimal portfolio strategy hedges the
liability by directly tracking a benchmark process which represents the
liability. Two numerical results using empirical data published by Japanese
organizations are served: simulations tracking an artificial liability and an
estimated liability of Japanese organization. The latter one demonstrates that
our optimal portfolio strategy can hedge his or her liability.

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## A general "bang-bang" principle for predicting the maximum of a random walk

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Publicado em 03/10/2009
Português

Relevância na Pesquisa

45.69%

#Mathematics - Probability#Quantitative Finance - Portfolio Management#Quantitative Finance - Statistical Finance#60G40, 60G50, 60J65, 60G25

Let $(B_t)_{0\leq t\leq T}$ be either a Bernoulli random walk or a Brownian
motion with drift, and let $M_t:=\max\{B_s: 0\leq s\leq t\}$, $0\leq t\leq T$.
This paper solves the general optimal prediction problem \sup_{0\leq\tau\leq
T}\sE[f(M_T-B_\tau)], where the supremum is over all stopping times $\tau$
adapted to the natural filtration of $(B_t)$, and $f$ is a nonincreasing convex
function. The optimal stopping time $\tau^*$ is shown to be of "bang-bang"
type: $\tau^*\equiv 0$ if the drift of the underlying process $(B_t)$ is
negative, and $\tau^*\equiv T$ is the drift is positive. This result
generalizes recent findings by S. Yam, S. Yung and W. Zhou [{\em J. Appl.
Probab.} {\bf 46} (2009), 651--668] and J. Du Toit and G. Peskir [{\em Ann.
Appl. Probab.} {\bf 19} (2009), 983--1014], and provides additional
mathematical justification for the dictum in finance that one should sell bad
stocks immediately, but keep good ones as long as possible.; Comment: 13 pages

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## Price Impact

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Publicado em 13/03/2009
Português

Relevância na Pesquisa

55.72%

We define what "Price Impact" means, and how it is measured and modelled in
the recent literature. Although this notion seems to convey the idea of a
forceful and intuitive mechanism, we discuss why things might not be that
simple. Empirical studies show that while the correlation between signed order
flow and price changes is strong, the impact of trades on prices is neither
linear in volume nor permanent. Impact allows private information to be
reflected in prices, but by the same token, random fluctuations in order flow
must also contribute to the volatility of markets.; Comment: Entry for the upcoming "Encyclopedia of Quantitative Finance"

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## A stochastic reachability approach to portfolio construction in finance industry

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Publicado em 19/07/2009
Português

Relevância na Pesquisa

55.71%

In finance industry portfolio construction deals with how to divide the
investors' wealth across an asset-classes' menu in order to maximize the
investors' gain. Main approaches in use at the present are based on variations
of the classical Markowitz model. However, recent evolutions of the world
market showed limitations of this method and motivated many researchers and
practitioners to study alternative methodologies to portfolio construction. In
this paper we propose one approach to optimal portfolio construction based on
recent results on stochastic reachability, which overcome some of the limits of
current approaches. Given a sequence of target sets that the investors would
like their portfolio to stay within, the optimal portfolio allocation is
synthesized in order to maximize the joint probability for the portfolio value
to fulfill the target sets requirements. A case study in the US market is given
which shows benefits from the proposed methodology in portfolio construction. A
comparison with traditional approaches is included.; Comment: 15 pages, 7 figures

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## The Effects of Market Properties on Portfolio Diversification in the Korean and Japanese Stock Markets

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Publicado em 22/02/2009
Português

Relevância na Pesquisa

45.72%

In this study, we have investigated empirically the effects of market
properties on the degree of diversification of investment weights among stocks
in a portfolio. The weights of stocks within a portfolio were determined on the
basis of Markowitz's portfolio theory. We identified that there was a negative
relationship between the influence of market properties and the degree of
diversification of the weights among stocks in a portfolio. Furthermore, we
noted that the random matrix theory method could control the properties of
correlation matrix between stocks; this may be useful in improving portfolio
management for practical application.

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## Online Portfolio Selection: A Survey

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Português

Relevância na Pesquisa

45.75%

#Quantitative Finance - Computational Finance#Computer Science - Artificial Intelligence#Computer Science - Computational Engineering, Finance, and Science#Quantitative Finance - Portfolio Management

Online portfolio selection is a fundamental problem in computational finance,
which has been extensively studied across several research communities,
including finance, statistics, artificial intelligence, machine learning, and
data mining, etc. This article aims to provide a comprehensive survey and a
structural understanding of published online portfolio selection techniques.
From an online machine learning perspective, we first formulate online
portfolio selection as a sequential decision problem, and then survey a variety
of state-of-the-art approaches, which are grouped into several major
categories, including benchmarks, "Follow-the-Winner" approaches,
"Follow-the-Loser" approaches, "Pattern-Matching" based approaches, and
"Meta-Learning Algorithms". In addition to the problem formulation and related
algorithms, we also discuss the relationship of these algorithms with the
Capital Growth theory in order to better understand the similarities and
differences of their underlying trading ideas. This article aims to provide a
timely and comprehensive survey for both machine learning and data mining
researchers in academia and quantitative portfolio managers in the financial
industry to help them understand the state-of-the-art and facilitate their
research and practical applications. We also discuss some open issues and
evaluate some emerging new trends for future research directions.; Comment: 33 pages

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## Coal Enterprise Management and Asynchronism of Return

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Publicado em 09/11/2012
Português

Relevância na Pesquisa

55.76%

For researching the association between coal enterprise management and return
in financial market, this paper applies the method of time difference relevance
and PageRank method to seek the leader-index of a stock set containing 21 coal
enterprises in A-share market and score those stocks. Based on the return in
2011, the asynchronism of the return series is revealed and presents a
hierarchical structure of our stock set. Finally, we compare the result with
the firm-level variables and discuss the relation between them. The results
show that those large coal enterprises with a good management condition always
present an antecedence of stock return; there is a significant positive
association between company scale and the score given by PageRank method.

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## Relative Robust Portfolio Optimization

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Português

Relevância na Pesquisa

45.72%

#Quantitative Finance - Portfolio Management#Mathematics - Optimization and Control#Quantitative Finance - Computational Finance

Considering mean-variance portfolio problems with uncertain model parameters,
we contrast the classical absolute robust optimization approach with the
relative robust approach based on a maximum regret function. Although the
latter problems are NP-hard in general, we show that tractable inner and outer
approximations exist in several cases that are of central interest in asset
management.

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## A dual characterization of self-generation and exponential forward performances

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Português

Relevância na Pesquisa

45.69%

#Quantitative Finance - Computational Finance#Mathematics - Probability#Quantitative Finance - Portfolio Management#91B16 (Primary), 91B28 (Secondary)

We propose a mathematical framework for the study of a family of random
fields--called forward performances--which arise as numerical representation of
certain rational preference relations in mathematical finance. Their spatial
structure corresponds to that of utility functions, while the temporal one
reflects a Nisio-type semigroup property, referred to as self-generation. In
the setting of semimartingale financial markets, we provide a dual formulation
of self-generation in addition to the original one, and show equivalence
between the two, thus giving a dual characterization of forward performances.
Then we focus on random fields with an exponential structure and provide
necessary and sufficient conditions for self-generation in that case. Finally,
we illustrate our methods in financial markets driven by It\^o-processes, where
we obtain an explicit parametrization of all exponential forward performances.; Comment: Published in at http://dx.doi.org/10.1214/09-AAP607 the Annals of
Applied Probability (http://www.imstat.org/aap/) by the Institute of
Mathematical Statistics (http://www.imstat.org)

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## Optimal Position Management for a Market Maker with Stochastic Price Impacts

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Português

Relevância na Pesquisa

45.74%

#Quantitative Finance - Pricing of Securities#Quantitative Finance - Mathematical Finance#93E20, 91G10, 60H35

This paper deals with an optimal position management problem for a market
maker who has to face uncertain customer order flows in an illiquid market,
where the market maker's continuous trading incurs a stochastic linear price
impact. Although the execution timing is uncertain, the market maker can also
ask its OTC counterparties to transact a block trade without causing a direct
price impact. We adopt quite generic stochastic processes of the securities,
order flows, price impacts, quadratic penalties as well as security
borrowing/lending rates. The solution of the market maker's optimal
position-management strategy is represented by a stochastic
Hamilton-Jacobi-Bellman equation, which can be decomposed into three (one
non-linear and two linear) backward stochastic differential equations (BSDEs).
We provide the verification using the standard BSDE techniques for a single
security case. For a multiple-security case, we make use of the connection of
the non-linear BSDE to a special type of backward stochastic Riccati
differential equation (BSRDE) whose properties were studied by Bismut(1976). We
also propose a perturbative approximation scheme for the resultant BSRDE, which
only requires a system of linear ODEs to be solved at each expansion order. Its
justification and the convergence rate are also given.; Comment: Revised and extended. Convergence of the approximation scheme is
added

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## Computation of vector sublattices and minimal lattice-subspaces of R^k. Applications in finance

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Publicado em 18/06/2010
Português

Relevância na Pesquisa

45.69%

#Quantitative Finance - Computational Finance#Mathematics - Numerical Analysis#Quantitative Finance - Portfolio Management#46N10, 91B28

In this article we perform a computational study of Polyrakis algorithms
presented in [12,13]. These algorithms are used for the determination of the
vector sublattice and the minimal lattice-subspace generated by a finite set of
positive vectors of R^k. The study demonstrates that our findings can be very
useful in the field of Economics, especially in completion by options of
security markets and portfolio insurance.; Comment: 22 pages

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## Large-scale empirical study on pairs trading for all possible pairs of stocks listed on the first section of the Tokyo Stock Exchange

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Português

Relevância na Pesquisa

45.77%

#Quantitative Finance - Trading and Market Microstructure#Quantitative Finance - Computational Finance#Quantitative Finance - Portfolio Management

We carry out a large-scale empirical data analysis to examine the efficiency
of the so-called pairs trading. On the basis of relevant three thresholds,
namely, starting, profit-taking, and stop-loss for the `first-passage process'
of the spread (gap) between two highly-correlated stocks, we construct an
effective strategy to make a trade via `active' stock-pairs automatically. The
algorithm is applied to $1,784$ stocks listed on the first section of the Tokyo
Stock Exchange leading up to totally $1,590,436$ pairs. We are numerically
confirmed that the asset management by means of the pairs trading works
effectively at least for the past three years (2010-2012) data sets in the
sense that the profit rate becomes positive (totally positive arbitrage) in
most cases of the possible combinations of thresholds corresponding to
`absorbing boundaries' in the literature of first-passage processes.; Comment: 19 pages, 14 figures, using svjour3.cls

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## The Kelly growth optimal strategy with a stop-loss rule

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Português

Relevância na Pesquisa

55.63%

From the Hamilton-Jacobi-Bellman equation for the value function we derive a
non-linear partial differential equation for the optimal portfolio strategy
(the dynamic control). The equation is general in the sense that it does not
depend on the terminal utility and provides additional analytical insight for
some optimal investment problems with known solutions. Furthermore, when
boundary conditions for the optimal strategy can be established independently,
it is considerably simpler than the HJB to solve numerically. Using this method
we calculate the Kelly growth optimal strategy subject to a periodically reset
stop-loss rule.; Comment: 13 pages, 4 figures. Submitted to Quantitative Finance 29 May 2013

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## Weakly nonlinear analysis of the Hamilton-Jacobi-Bellman equation arising from pension savings management

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Português

Relevância na Pesquisa

55.77%

The main purpose of this paper is to analyze solutions to a fully nonlinear
parabolic equation arising from the problem of optimal portfolio construction.
We show how the problem of optimal stock to bond proportion in the management
of pension fund portfolio can be formulated in terms of the solution to the
Hamilton-Jacobi-Bellman equation. We analyze the solution from qualitative as
well as quantitative point of view. We construct useful bounds of solution
yielding estimates for the optimal value of the stock to bond proportion in the
portfolio. Furthermore we construct asymptotic expansions of a solution in
terms of a small model parameter. Finally, we perform sensitivity analysis of
the optimal solution with respect to various model parameters and compare
analytical results of this paper with the corresponding known results arising
from time-discrete dynamic stochastic optimization model.; Comment: 20 pages

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## Diversity-Weighted Portfolios with Negative Parameter

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Português

Relevância na Pesquisa

45.69%

#Quantitative Finance - Mathematical Finance#Quantitative Finance - Portfolio Management#60H30, 91B28

We analyze a negative-parameter variant of the diversity-weighted portfolio
studied by Fernholz, Karatzas, and Kardaras (Finance Stoch 9(1):1-27, 2005),
which invests in each company a fraction of wealth inversely proportional to
the company's market weight (the ratio of its capitalization to that of the
entire market). We show that this strategy outperforms the market with
probability one, under a non-degeneracy assumption on the volatility structure
and the assumption that the market weights admit a positive lower bound.
Several modifications of this portfolio, which outperform the market under
milder versions of this "no-failure" condition, are put forward, one of which
is rank-based. An empirical study suggests that such strategies as studied here
have indeed the potential to outperform the market and to be preferable
investment opportunities, even under realistic proportional transaction costs.; Comment: 25 pages

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## Efficient Discretization of Stochastic Integrals

Fonte: Universidade Cornell
Publicador: Universidade Cornell

Tipo: Artigo de Revista Científica

Publicado em 03/04/2012
Português

Relevância na Pesquisa

45.69%

#Mathematics - Probability#Quantitative Finance - Computational Finance#Quantitative Finance - Portfolio Management

Sharp asymptotic lower bounds of the expected quadratic variation of
discretization error in stochastic integration are given. The theory relies on
inequalities for the kurtosis and skewness of a general random variable which
are themselves seemingly new. Asymptotically efficient schemes which attain the
lower bounds are constructed explicitly. The result is directly applicable to
practical hedging problem in mathematical finance; it gives an asymptotically
optimal way to choose rebalancing dates and portofolios with respect to
transaction costs. The asymptotically efficient strategies in fact reflect the
structure of transaction costs. In particular a specific biased rebalancing
scheme is shown to be superior to unbiased schemes if transaction costs follow
a convex model. The problem is discussed also in terms of the exponential
utility maximization.

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