Bernardo and Ledoit (2000) develop a very appealing framework to compute pricing bounds based on the so-called gain-loss ratio. Their method has many advantages and very interesting properties and so far one important drawback: the complexity of the numerical computation of the pricing bounds....

Allocation between factor portfolios can bring significant advantages over traditional portfolio optimization performed among individual assets or asset classes. One such advantage is a substantial dimension reduction when one's attention turns from many assets to few factors. This, however,...

This note develops the solutions of the static portfolio optimization problem in explicit matrix form. Three cases are contemplated and connected, with the derivation of relevant corner solutions: the unconstrained problem in the presence of risky assets only, the constrained one, and the...

This paper studies the valuation of multiple American options in an incomplete market where asset prices follow Markov-modulated dynamics. The holder's optimal hedging and exercising strategies are determined from a utility maximization problem with optimal multiple stopping. We analyze the...

In this paper we propose a quasi-shrinkage approach for minimum-variance portfolios which does not use a quadratic loss function to derive the optimal shrinkage intensity. We develop two alternative objective functions for linear shrinkage. The first targets the reduction of portfolio variance....

We define a regularized variant of the Dual Dynamic Programming algorithm called REDDP (REgularized Dual Dynamic Programming) to solve nonlinear dynamic programming equations. We extend the algorithm to solve nonlinear stochastic dynamic programming equations. The corresponding algorithm, called...

We propose a simple risk-adjusted linear approximation to solve a large class of dynamic models with time-varying and non-Gaussian risk. Our approach generalizes lognormal affine approximations commonly used in the macro-finance literature and can be seen as a first-order perturbation around the...