{"title":"Characteristics of robust portfolios in a varied asset universe","authors":"W. Kim, Je Hyuk Lee","doi":"10.1080/21649502.2013.812718","DOIUrl":"https://doi.org/10.1080/21649502.2013.812718","url":null,"abstract":"In this paper, we find that the robust portfolios constructed from worst-case approaches systematically bet more on the factors in an asset universe composed of equities, fixed incomes, and commodities. This generalizes the findings that the robust equity portfolios are more tilted towards Fama–French factors than mean–variance portfolios. In addition, we show that the factor exposures of robust portfolios can be controlled by adding linear constraints to the original robust problems but the revised approach comes at the cost of decrease in robustness.","PeriodicalId":438897,"journal":{"name":"Quantitative Finance Letters","volume":"78 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-06-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116609511","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Approximation behoves calibration","authors":"André M. S. Ribeiro, R. Poulsen","doi":"10.1080/21649502.2013.803781","DOIUrl":"https://doi.org/10.1080/21649502.2013.803781","url":null,"abstract":"Calibration based on an expansion approximation for option prices in the Heston stochastic volatility model gives stable, accurate, and fast results for S&P500-index option data over the period 2005–2009.","PeriodicalId":438897,"journal":{"name":"Quantitative Finance Letters","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-06-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129416260","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Index-tracking optimal portfolio selection","authors":"N. Edirisinghe","doi":"10.1080/21649502.2013.803789","DOIUrl":"https://doi.org/10.1080/21649502.2013.803789","url":null,"abstract":"This paper considers a portfolio selection problem with multiple risky assets where the portfolio is managed to track a benchmark market barometer, such as the S&P 500 index. A tracking optimization model is formulated and the tracking-efficient (TE) portfolios are shown to inherit interesting properties compared with Markowitz mean-variance (MV) optimal portfolios. In comparison to an MV-portfolio, both the beta and the variance of a TE-portfolio are higher by fixed amounts that are independent of the expected portfolio return. These differences increase with index variance, are convex quadratic in the asset betas, and depend on the asset means and covariance matrix. Furthermore, a TE portfolio is obtained by simply extending an MV portfolio by constant adjustments to portfolio weights, independent of the specified mean return of the portfolio, but dependent on the index variance and asset return parameters. Consequently, at lower thresholds of risk, TE portfolios are better-diversified than MV portfolios.","PeriodicalId":438897,"journal":{"name":"Quantitative Finance Letters","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128286714","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Credit valuation adjustment and wrong way risk","authors":"Umberto Cherubini","doi":"10.1080/21649502.2013.808029","DOIUrl":"https://doi.org/10.1080/21649502.2013.808029","url":null,"abstract":"We propose a copula function approach to evaluate credit valuation adjustment (CVA) under the assumption of wrong way risk, that is, dependence between the underlying asset and the default risk of the counter party. The model is applied to interest rate swap contracts that represent a huge share of the worldwide over-the-counter derivatives market. The model extends the seminal Sorensen and Bollier approach that was based on the assumption of independence between market and credit risk. Using copulas grants maximum flexibility with the choice of both term structure and credit risk models, as well as the dependence between the two. Closed-form hedging and pricing formulas are obtained for extreme dependence assumptions and for copula functions of the Fréchet family, that is, mixture copulas of the perfect dependence and the independence copulas. An illustrative application shows that dependence affects both the level and the slope of the CVA spreads.","PeriodicalId":438897,"journal":{"name":"Quantitative Finance Letters","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-06-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131393965","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Black–Litterman in continuous time: the case for filtering","authors":"Mark H. A. Davis, Sébastien Lleo","doi":"10.1080/21649502.2013.803794","DOIUrl":"https://doi.org/10.1080/21649502.2013.803794","url":null,"abstract":"In this article, we extend the Black–Litterman approach to a continuous time setting. We model analyst views jointly with asset prices to estimate the unobservable factors driving asset returns. The key in our approach is that the filtering problem and the stochastic control problem are effectively separable. We use this insight to incorporate analyst views and non-investable assets as observations in our filter even though they are not present in the portfolio optimisation.","PeriodicalId":438897,"journal":{"name":"Quantitative Finance Letters","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-05-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132455499","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Hedging without sweat: a genetic programming approach","authors":"T. Lensberg, K. Schenk-Hoppé","doi":"10.1080/21649502.2013.813166","DOIUrl":"https://doi.org/10.1080/21649502.2013.813166","url":null,"abstract":"Hedging in the presence of transaction costs leads to complex optimization problems. These problems typically lack closed-form solutions, and their implementation relies on numerical methods that provide hedging strategies for specific parameter values. In this paper, we use a genetic programming algorithm to derive explicit formulas for near-optimal hedging strategies under nonlinear transaction costs. The strategies are valid over a large range of parameter values and require no information about the structure of the optimal hedging strategy.","PeriodicalId":438897,"journal":{"name":"Quantitative Finance Letters","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-05-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126138619","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Trading networks, abnormal motifs and stock manipulation","authors":"Zhi-Qiang Jiang, Wen-Jie Xie, Xiong Xiong, Wei Zhang, Yongjie Zhang, Wei‐Xing Zhou","doi":"10.1080/21649502.2013.802877","DOIUrl":"https://doi.org/10.1080/21649502.2013.802877","url":null,"abstract":"We study trade-based manipulation of stock prices from the perspective of complex trading networks constructed by using detailed information of trades. A stock trading network consists of nodes and directed links, where every trader is a node and a link is formed from one trader to the other if the former sells shares to the latter. Specifically, three abnormal network motifs are investigated, which are found to be formed by a few traders, implying potential intention of price manipulation. We further investigate the dynamics of volatility, trading volume, average trade size and turnover around the transactions associated with the abnormal motifs for large, medium and small trades. It is found that these variables peak at the abnormal events and exhibit a power-law accumulation in the pre-event time period and a power-law relaxation in the post-event period. We also find that the cumulative excess returns are significantly positive after buyer-initiated suspicious trades and exhibit a mild price reversal after seller-initiated suspicious trades. These findings can be better understood in favour of price manipulation. Our work sheds new lights into the detection of price manipulation resorting to the abnormal motifs of complex trading networks.","PeriodicalId":438897,"journal":{"name":"Quantitative Finance Letters","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-12-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127665982","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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