Search results for "Portfolio optimization"
showing 10 items of 48 documents
An Open Innovation Decision Support System to Select a Biopharmaceutical R&D Portfolio
2015
Drugs available in the market today, selected several years ago under very uncertain future scenario, have experienced a long and expensive process of research and development carried out following both a closed and an open innovation path. To support this critical selection process, we propose a Decision Support System, able to choose among different candidates the most promising drugs along their best development path. The Decision Support System, based on a real options portfolio optimization model, mapping tools, and what-if rules as well, has been applied to a numerical example available in literature, and the research findings show interesting managerial and academic implications. Cop…
On the Consistent Use of VaR in Portfolio Performance Evaluation: A Cautionary Note
2010
The portfolio performance measures based on the Value-at-Risk (VaR) concept have gained widespread popularity and are often used in empirical studies. Unfortunately, we have noticed that in majority of empirical studies a VaR-based performance measure is used inconsistently. The goal of this paper is, therefore, to emphasize how to consistently use VaR in portfolio performance evaluation. We also elaborate on a simple framework that allows to derive a general formula for a portfolio performance measure which is not limited to the use of VaR-based reward and risk measures, but is valid for all reward and risk measures that satisfy a few plausible properties.
How does learning affect market liquidity? A simulation analysis of a double-auction financial market with portfolio traders
2007
We study the relationship between liquidity and prices in an artificial financial market where portfolio traders with limited resources interact through a continuous, electronic open book. We depart from the standard asset pricing framework in two ways. First, we assume that investors have incomplete information about the distribution of returns. Second, we model the portfolio choice problem using prospect-type preferences. We model the utility function in terms of deviations of the portfolio growth rate from a specified target growth rate, and we assume that investors are more sensitive to downside movements. We show that the parameters defining the learning process affect the price dynami…
A naïve approach to speed up portfolio optimization problem using a multiobjective genetic algorithm
2012
a b s t r a c t Genetic algorithms (GAs) are appropriate when investors have the objective of obtaining mean-variance (VaR) efficient frontier as minimising VaR leads to non-convex and non-differential risk-return optimisation problems. However GAs are a time-consuming optimisation technique. In this paper, we propose to use a naive approach consisting of using samples split by quartile of risk to obtain complete efficient frontiers in a reasonable computation time. Our results show that using reduced problems which only consider a quartile of the assets allow us to explore the efficient frontier for a large range of risk values. In particular, the third quartile allows us to obtain efficie…
When do Improved Covariance Matrix Estimators Enhance Portfolio Optimization? An Empirical Comparative Study of Nine Estimators
2010
The use of improved covariance matrix estimators as an alternative to the sample estimator is considered an important approach for enhancing portfolio optimization. Here we empirically compare the performance of 9 improved covariance estimation procedures by using daily returns of 90 highly capitalized US stocks for the period 1997-2007. We find that the usefulness of covariance matrix estimators strongly depends on the ratio between estimation period T and number of stocks N, on the presence or absence of short selling, and on the performance metric considered. When short selling is allowed, several estimation methods achieve a realized risk that is significantly smaller than the one obtai…
Fuzzy portfolio optimization under downside risk measures
2007
This paper presents two fuzzy portfolio selection models where the objective is to minimize the downside risk constrained by a given expected return. We assume that the rates of returns on securities are approximated as LR-fuzzy numbers of the same shape, and that the expected return and risk are evaluated by interval-valued means. We establish the relationship between those mean-interval definitions for a given fuzzy portfolio by using suitable ordering relations. Finally, we formulate the portfolio selection problem as a linear program when the returns on the assets are of trapezoidal form.
Asset and Liability Management for Insurance Products with Minimum Guarantees: The UK Case
2006
Abstract Modern insurance products are becoming increasingly complex, offering various guarantees, surrender options and bonus provisions. A case in point are the with-profits insurance policies offered by UK insurers. While these policies have been offered in some form for centuries, in recent years their structure and management have become substantially more involved. The products are particularly complicated due to the wide discretion they afford insurers in determining the bonuses policyholders receive. In this paper, we study the problem of an insurance firm attempting to structure the portfolio underlying its with-profits fund. The resulting optimization problem, a non-linear program…
Dominating Clasp of the Financial Sector Revealed by Partial Correlation Analysis of the Stock Market
2010
What are the dominant stocks which drive the correlations present among stocks traded in a stock market? Can a correlation analysis provide an answer to this question? In the past, correlation based networks have been proposed as a tool to uncover the underlying backbone of the market. Correlation based networks represent the stocks and their relationships, which are then investigated using different network theory methodologies. Here we introduce a new concept to tackle the above question--the partial correlation network. Partial correlation is a measure of how the correlation between two variables, e.g., stock returns, is affected by a third variable. By using it we define a proxy of stoc…
The Dynamics of Quote Prices in an Artificial Financial Market with Learning Effects
2007
In this paper we study the evolution of bid and ask prices in an electronic financial market populated by portfolio traders who optimally choose their allocation strategy on the basis of their views about market conditions. Recently, a growing literature has investigated the consequences of learning about the returns process1. There has been an increasing interest in analyzing what are the implications of relaxing the assumption that agents hold correct expectations. In particular, it has been asked the fundamental question of understanding if typical asset-pricing anomalies (like returns predictability, and excess volatility) can be generated by a learning process about the underlying econ…
A Portfolio Problem with Uncertainty
2000
In this paper we present two models for cash flow matching with an uncertain level of payments at each due date. To solve the problem of minimising the initial investment we use the scenario method proposed by Dembo, and the robust optimisation method proposed by Mulvey et al. We unify these optimisation methods in a general co-ordinated model that guarantees a match under every scenario. This general model is also a multi-objective programming problem. We illustrate this methodology in a problem with several scenarios.