This paper uses simulation-based portfolio optimization to mitigate the left tail risk of the portfolio. The contribution is twofold. (i) We propose the Markov regime-switching GARCH model with multivariate normal tempered stable innovation (MRS-MNTS-GARCH) to accommodate fat tails, volatility...

This paper investigates the extreme dependence between the Asia-Pacific stock markets and the international crude oil market by applying the quantile regression theory and using daily data from January 4th, 2000 to July 4th, 2016. The authors obtain a more detailed result on the degree and...

Two basic solutions have been proposed to fix the well-documented incompatibility of the sample covariance matrix with Markowitz mean-variance portfolio optimization: first, restrict leverage so much that no short sales are allowed; or, second, linearly shrink the sample covariance matrix towards...

We investigate the effects of constraining leverage and shrinking covariance matrix in constructing large portfolios, both theoretically and empirically. Considering a wide variety of setups that involve conditioning or not conditioning the covariance matrix estimator on the recent past...