Investors sometimes have strong convictions that a distinctive economic regime will prevail in the period ahead and therefore would like to form a portfolio that reflects the expected returns, standard deviations, and correlations of assets during such a regime. To do so, they typically isolate...

On the tracking and replication of hedge fund optimal investment portfolio strategies in global The hedge fund represents a unique investment opportunity for the institutional and private investors in the diffusion-type financial systems. The main objective of this condensed article is to...

Exposure to market risk is a core objective of the Capital Asset Pricing Model (CAPM) with a focus on systematic risk. However, traditional OLS Beta model estimations (Ordinary Least Squares) are plagued with several statistical issues. Moreover, the CAPM considers only one source of risk and...

This paper explores a linear hedge fund replication and alternative beta methodology that is robust to the presence of non linearities and the possibility of model mis-specification. In a fashion similar to Roncalli and Weisang (2009a), the problem is cast as a tracking problem in order to allow...

In the existing financial literature, entropy based ideas have been proposed in portfolio optimization and in model calibration for options pricing. The abstracted problem corresponds to finding a probability measure that minimizes Kullbach-Leibler (KL) distance with respect to a known measure...

The investment industry lacks an unified framework for handling derivative instruments in general portfolio management. With the increased use of derivatives, there is a need for a framework that aligns fundamental terminology and concepts. The main challenges with the current practices are...

Replicating portfolios have recently emerged as an important tool in the life insurance industry, used for the valuation of companies' liabilities. This paper presents a replicating portfolio (RP) model for approximating life insurance liabilities as closely as possible. We minimize the L1 error...

State space models play a key role in the estimation of time-varying sensitivities in financial markets. The objective of this book is to analyze the relative merits of modern time series techniques, such as Markov regime switching and the Kalman filter, to model structural changes in the...