We construct an optimizing-agent model of a closed economy which is simple enough that we can use it to make exact utility calculations. There is a stabilization problem because there are one-period nominal contracts for wages, or prices, or both and shocks that are unknown at the time when...

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...

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,...

Several exchanges in futures and options deploy pro-rata matching. The executed size of limit orders in pro-rata markets is never certain, unlike in price-time priority matching systems. This article derives the optimal size of limit orders in pro-rata markets given the trader's desired...

We consider second, third, fourth and fifth order stochastic dominance (SSD, TSD, FOSD and FISD, respectively) as well as decreasing absolute risk aversion (DARA) stochastic dominance (DSD). For comparison with DSD we also consider stochastic dominance (ESD) based on CARA utility functions....

This paper examines how volatility positions can be optimally constructed by modeling the selection process as a linear discrete ill-posed problem with box constraints. We show how this framework allows for a priori investor expectations and risk parameters to be applied in the optimization...

Following Levy and Roll [2010], we posit that the market portfolio is the efficient tangent Markowitz portfolio, i.e., it is mean-variance efficient. We then reverse engineer the expected returns and variance terms with constraints imposed by empirical data on a hierarchy of asset baskets. This...