Portfolio optimization approaches inevitably rely on multivariate modeling of markets and the economy. In this paper, we address three sources of error related to the modeling of these complex systems: 1.oversimplifying hypothesis; 2. uncertainties resulting from parameters' sampling error; 3....

The motivation of this paper is to introduce a short term adaptive model (Partial Swarm Optimizer combined with linear and nonlinear models when applied to the task of forecasting and trading the daily closing returns of the FTSE100 exchange traded funds (ETFs). This is done by benchmarking its...

The popular scholarly exercise of evaluating exchange rate forecasting models relative to a random walk was stimulated by the well-cited Meese and Rogoff (1983) paper. Practitioners who construct quantitative models for trading exchange rates approach forecasting from a different perspective....

The popular scholarly exercise of evaluating exchange rate forecasting models relative to a random walk was stimulated by the well-cited Meese and Rogoff (1983) paper. Practitioners who construct quantitative models for trading exchange rates approach forecasting from a different perspective....

Portfolio allocation strategies often seek risk budgeting and diversification by relying only on correlation matrices to model relationships between assets. Although this approach can capture, in normal times, most of the dependencies between asset prices, it faces several challenges in terms of...

We propose a new approach that allows for incorporating qualitative views, such as ordering information, into estimates of future asset returns within the Black-Litterman model. We develop a mathematical framework and numerical computation methods for this setting. We find importance sampling to...

This paper examines the effectiveness of using futures contracts as hedging instruments of: (1) alternative models of volatility for estimating conditional variances and covariances; (2) alternative currencies; and (3) alternative maturities of futures contracts. For this purpose, daily data of...

The paper examines the performance of four multivariate volatility models, namely CCC, VARMA-GARCH, DCC and BEKK, for the crude oil spot and futures returns of two major benchmark international crude oil markets, Brent and WTI, to calculate optimal portfolio weights and optimal hedge ratios, and...

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...