Rebalancing alpha is the excess return of a fixed-weight portfolio, which is regularly rebalanced, over its buy-and-hold counterpart. Two kinds of effects, both results of portfolio rebalancing, contribute to rebalancing alpha. The first is a volatility effect that arises from randomness of...

This paper aims to provide a mathematical justification for asset allocation. Asset allocation is widely employed in practice, yet the question of its efficiency remains open. Asset allocation allows portfolio managers to concentrate on a relatively small number of assets, while security...

We establish the existence and characterization of a primal and a dual facelift - discontinuity of the value function at the terminal time - for utility maximization in incomplete semimartingale-driven financial markets. Unlike in the lower- and upper-hedging problems, and somewhat unexpectedly,...

This paper empirically examines the impact of dependence structure between the assets on the portfolio optimization, composed of Tehran Stock Exchange Price Index and Borsa Istanbul 100 Index. In this regard, the method of the Copula family functions is proposed as powerful and flexible tool to...

Measuring the performance of stock portfolios that include options is challenging due to options' nonlinearity in the underlying, their exposure to volatility risk, and their time decay. Our contribution to the literature is twofold: First, we provide a theoretically rigorous derivation of the...

Investors typically measure an asset’s potential to diversify a portfolio by its correlations with the portfolio’s other assets, but correlation is useful only if it provides a good estimate of how an asset’s returns co-occur cumulatively with the other asset returns over the investor’s...

We investigate the optimal investment problem when the interest rate is stochastic and the investor must pay proportional transaction costs when buying and selling the risky assets. We first consider a portfolio of bonds and transaction costs.We then add a stock to the portfolio, and analyze the...

We solve the problem of mean-variance hedging for general semimartingale models via stochastic control methods. After proving that the value process of the associated stochastic control problem has a quadratic structure, we characterise its three coefficient processes as solutions of...

We solve the problems of mean-variance hedging (MVH) and mean-variance portfolio selection (MVPS) under restricted information. We work in a setting where the underlying price process S is a semimartingale, but not adapted to the filtration G which models the information available for...