In this article, we present a procedure for obtaining an optimal solution to the Markowitz's mean-variance portfolio selection problem based on the analytical solution developed in a previous research that lead to the emergence of an important model known as the Black Model. The procedure is...

Heterogeneous beliefs among market participants can lead to questionable speculative trading that goes beyond any risk-sharing motives. We demonstrate that such unwarranted betting behavior in market equilibrium can be mitigated by introducing nonlinear pricing for ambiguous contracts, without...

We introduce a model for portfolio selection with an extendable investment universe where the agent faces a trade-off between exploiting existing and exploring for new investment opportunities. An agent with mean-variance preferences starts with an existing investment universe consisting of a...

Limited liability creates a conflict of interests between policyholders and shareholders of insurance companies. It provides shareholders with incentives to increase the risk of the insurer's assets and liabilities which, in turn, might reduce the value policyholders attach to and premiums they...

Heuristic optimization methods and their application to finance are discussed. Two illustrations of these methods are presented: the selection of assets in a portfolio and the estimation of a complicated econometric model

In this contribution we propose a dynamic tracking error problem and we consider the problem of monitoring at discrete point the shortfall of the portfolio below a set of given reference levels of wealth. We formulate and solve the resulting dynamic optimization problem using stochastic...

A fast method based on coordinate-wise descent algorithms is developed to solve portfolio optimization problems in which asset weights are constrained by Lq norms for 1=q=2. The method is first applied to solve a minimum variance portfolio (mvp) optimization problem in which asset weights are...

We investigate the performance of the threshold accepting heuristic for the index tracking problem. The index tracking problem consists in minimizing the tracking error between a portfolio and a benchmark. The objective is to replicate the performance of a given index upon the condition that the...

Households who wish to extract home equity through refinancing their mortgage face a hidden transaction cost. The real value of the fixed nominal mortgage payment declines over time with inflation. The change in the real value of the mortgage payments from taking on a new mortgage is positive...