We present a framework for inverse optimization in a Markowitz portfolio model that is extended to include a third criterion. The third criterion causes the traditional nondominated frontier to become a surface. Until recently, it had not been possible to compute such a surface. But by using a...

Risk capital allocation is based on the assumption that the risk of a homogeneous portfolio is scaled up and down with the portfolio size. In this article we show that this assumption is true for large portfolios, but has to be revised for small ones. On basis of numerical examples we calculate...

This paper analyzes observed prices of US temperature futures at the Chicago Mercantile Exchange (CME). Results show that an index modeling approach without detrending captures the prices exceptionally well. Moreover, weather forecasts significantly influence prices up to 11 days ahead. It is...

This paper considers the financial optimization problem of a firm with several sub-businesses striving for its optimal RORAC. An insightful example shows that the implementation of classical gradient capital allocation can be suboptimal if division managers are allowed to venture into all...

We present four models for predicting temperatures that can be used for pricing weather derivatives. Three of the models have been suggested in previous literature, and we propose another model that uses splines to remove trend and seasonality effects from temperature time series in a flexible...