This paper develops a dynamic portfolio selection model incorporating economic uncertainty for business cycles. It is assumed that the financial market at each point in time is defined by a hidden Markov model, which is characterized by the overall equity market returns and volatility. The risk...

The optimal capital growth strategy or Kelly strategy, has many desirable properties such as maximizing the asympotic long run growth of capital. However, it has considerable short run risk since the utility is logarithmic, with essentially zero Arrow-Pratt risk aversion. Most investors favor a...

Semi-encapsulated microfiber Mach-Zehnder interferometer is designed and developed for temperature, salinity and pressure (TSP) sensing in seawater. Based on the theoretical analysis, sensing experiment is performed with typical sensitivities of -2312 pm/℃, 631 pm/‰, and 3775 pm/MPa,...

This paper considers the estimation of parameters in a dynamic stochastic model for securities prices, where the expected rate of return is a random variable. An empirical Bayes estimator is developed from the model structure. The estimator is an improvement on other popular estimators in terms...

This paper explores how the returns of country exchange traded funds (ETFs) respond to global risk factors in different market regimes. We consider the ETFs for the U.S., Canada, U.K., Germany, France, Italy, Japan, and Australia from May 30, 2000 to March 31, 2011. To answer this question, we...

Standard delta hedging fails to exactly replicate a European call option in the presence of transaction costs. We study a pricing and hedging model similar to the delta hedging strategy with an endogenous volatility parameter for the calculation of delta over time. The endogenous volatility...

Index funds that track a benchmark, such as the market cap-weighted S\&P 500 index, tend to have portfolio holdings biased toward slower-growth large-cap equities that result in the fund's under-performance, especially in economic downturns. We develop a rigorous quantitative framework that...

We analyze an optimal dynamic portfolio and asset allocation policy for investors who are concerned with the performances of their portfolios relative to a benchmark. Assuming that asset returns follow a multi-linear factor model similar to the structure of Ross (1976) and that portfolio...

This paper presents a method for solving multiperiod investment models with downside risk control characterized by the portfolio's worst outcome. The stochastic programming problem is decomposed into two subproblems: a nonlinear optimization model identifing the optimal terminal wealth and a...