A penalized expected risk criterion for portfolio selection

2019 ◽  
Vol 9 (3) ◽  
pp. 386-400 ◽  
Author(s):  
Ronghua Luo ◽  
Yi Liu ◽  
Wei Lan
Keyword(s):  
Transaction Cost ◽  
Portfolio Selection ◽  
Stock Markets ◽  
Alternative Methods ◽  
Content Type ◽  
Out Of Sample ◽  
Risk Criterion ◽  
Optimal Portfolio Selection ◽  
Definition Of ◽  
Quantitative Definition

Purpose Under the classical mean-variance framework, the purpose of this paper is to investigate the properties of the instability of minimal variance portfolio and then propose a novel penalized expected risk criterion (PERC) for optimal portfolio selection. Design/methodology/approach The proposed method considers not only a portfolio’s expected risk, but also its instability that is quantified by the variance of the estimated portfolio weights. This study tests the out-of-sample performance of various portfolio selection methods on both China and US stock markets. Findings It is very useful to control portfolio stability in real application of portfolio selection. The empirical results on both US and China stock markets show that PERC portfolio effectively controls turnover and consequently the transaction cost, and that is why it is so competing compared with other alternative methods. Research limitations/implications The findings suggest that the rebalancing turnover and the associated transaction cost that is usually ignored in theoretical analysis play a very important role in real investment. Practical implications For investors, especially institutional investors, the rebalancing turnover and corresponding transaction cost must be carefully addressed. The variance of the estimated portfolio weights is a good candidate to quantify portfolio instability. Originality/value This study addresses the important role of portfolio instability and proposes a novel expected risk criterion for portfolio selection after the quantitative definition of portfolio instability.

Utility Maximization and Optimal Portfolio Selection

2016 ◽  
pp. 246-270
Author(s):  
S. Udayabaskaran
Keyword(s):  
Stochastic Volatility ◽  
Transaction Cost ◽  
Portfolio Selection ◽  
Stochastic Models ◽  
Utility Maximization ◽  
Optimal Portfolio ◽  
Optimal Portfolio Selection

Utility maximization and optimal portfolio selection with or with-out consumption/transaction cost based on stochastic models of prices of securities with stochastic volatility are discussed.

scholarly journals The influence of moral sensitivity on organizational cooperation

Kybernetes ◽  
2015 ◽  
Vol 44 (6/7) ◽  
pp. 1067-1081 ◽  
Author(s):  
Oswaldo Terán ◽  
Christophe Sibertin-Blanc ◽  
Benoit Gaudou
Keyword(s):  
Free Rider ◽  
Research Field ◽  
Organizational Setting ◽  
Moral Sensitivity ◽  
Content Type ◽  
Formal Framework ◽  
Simulation Results ◽  
Definition Of ◽  
New Research ◽  
Quantitative Definition

Purpose – The purpose of this paper is to present how to model moral sensitivity and emotions in organizational setting by using the SocLab formal framework. SocLab is a platform for the modelling, simulation and analysis of cooperation relationships within social organizations – and more generally Systems of Organized Action. Design/methodology/approach – Simulation results, including an interesting tendency for a Free Rider model, will be given. Considering that actors’ decision-making processes are not just driven by instrumental interest, the SocLab learning simulation algorithm has been extended to represent moral sensitivity, making actors trying to prevent bad emotions and feel good ones. Findings – Some simulation results about actors’ collaboration and emotions in a Free Rider model were presented. A noteworthy tendency is that actors’ unconditional collaboration, which occurs when their moral sensitivity reaches its highest value, is not so good since it exempts other actors from collaboration (they take advantage from the unconditional collaboration), while values of moral sensitivity somewhat below the highest value (between 0.7 and 0.9) still induces collaboration from others. Originality/value – The research and results presented in this paper have not been presented in other papers or workshops. The presented quantitative definition of emotions (determining indexes of emotions) is different to previous approaches – for instance, to Ortony, Clore and Collins (OCC) qualitative descriptions and to logical descriptions. Similarly, simulation of morality in organizations is a new research field, which has received scarce attention up to now.

scholarly journals Applicability of Fuzzy TOPSIS Method in Optimal Portfolio Selection and an Application in BIST

2017 ◽  
Vol 9 (10) ◽  
pp. 107 ◽  
Author(s):  
Oguzhan Ece ◽  
Ahmet Serhat Uludag
Keyword(s):  
Portfolio Selection ◽  
Portfolio Management ◽  
General Structure ◽  
Fuzzy Topsis ◽  
Optimal Portfolio ◽  
Alternative Methods ◽  
Risk Level ◽  
Optimal Selection ◽  
Topsis Method ◽  
Optimal Portfolio Selection

General structure of saving-investment cycle and the effectiveness of this structure are included in the most significant issues of the financial system. One of the points of intervention in providing an effective saving-investment cycle is possible through channeling the savings toward optimal investment fields. This study aims at detecting the existence of alternative methods in determining optimal selection combination in the risk and revenue perspective of individual and corporate investors who would like to evaluate their savings in capital markets. For this purpose, the applicability of Fuzzy TOPSIS method, one of the multi-criteria decision making techniques in optimal portfolio selection was researched. The applicability of the stock investment alternatives ranked according to Fuzzy TOPSIS method was examined by comparing them to the optimal selection results determined according to Markowitz, one of the modern portfolio management techniques. In the study where performance indexes were used as assessment criteria the results of both methods were discussed in terms of risk at a certain revenue level and revenue at a certain risk level through Johnson and Sharp Indexes. The results obtained determined that the Fuzzy TOPSIS portfolio alternatives created using Fuzzy TOPSIS method revealed quite positive results in terms of performance, revenue and risk and pointed at applicability of Fuzzy TOPSIS method in optimal portfolio selection as well.

Agility in assembly systems: a comparison model

2017 ◽  
Vol 37 (4) ◽  
pp. 411-421 ◽  
Author(s):  
Luca Barbazza ◽  
Maurizio Faccio ◽  
Fabio Oscari ◽  
Giulio Rosati
Keyword(s):  
Production Cost ◽  
Model Complexity ◽  
Assembly System ◽  
Assembly Systems ◽  
Direct Production ◽  
Content Type ◽  
Independent Variables ◽  
Comparison Model ◽  
Definition Of ◽  
Quantitative Definition

Purpose This paper aims at analyzing different possible assembly systems, including innovative potential configurations such as the fully flexible assembly systems (FAS), by defining a novel analytical model that focuses on the concept of agility and its impact on the whole system performance, also evaluating the economic convenience in terms of the unit direct production cost. Design/methodology/approach The authors propose a comparison model derived by Newton’s second law, introducing a quantitative definition of agility (acceleration), resistance of an assembly system to any change of its operative state (inertia) and unit direct production cost (force). Different types of assembly systems (manual, flexible and fully FAS) are analyzed and compared using the proposed model, investigating agility, system inertia and their impact on the unit direct production cost. Findings The proposed agility definition and the proposed comparison model have been applied considering different sets of parameters as independent variables, such as the number of components to assemble (product model complexity) and the target throughput of the system. The main findings are a series of convenience areas which either, for a given target unit direct production cost (force), defines the most agile system to adopt or, for a given target agility (acceleration), defines the most economical system to adopt, as function of the independent variables. Originality/value The novelty of this work is, first, the analytical definition of agility applied to assembly systems and contextualized by means of the definition of the new comparison model. The comparison between different assembly systems on the basis of agility, and by using different sets of independent variables, is a further element of interest. Finally, the resulting convenience areas represent a desirable tool that could be used to optimally choose the most suitable assembly system according to one or more system parameters.

scholarly journals Dynamic risk-based optimization on cryptocurrencies

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bayu Adi Nugroho
Keyword(s):  
Transaction Cost ◽  
Dynamic Optimization ◽  
Design Methodology ◽  
Minimum Variance ◽  
Multivariate Garch ◽  
Optimization Strategy ◽  
Content Type ◽  
Out Of Sample ◽  
Rolling Windows ◽  
Practical Implications

PurposeIt is crucial to find a better portfolio optimization strategy, considering the cryptocurrencies' asymmetric volatilities. Hence, this research aimed to present dynamic optimization on minimum variance (MVP), equal risk contribution (ERC) and most diversified portfolio (MDP).Design/methodology/approachThis study applied dynamic covariances from multivariate GARCH(1,1) with Student’s-t-distribution. This research also constructed static optimization from the conventional MVP, ERC and MDP as comparison. Moreover, the optimization involved transaction cost and out-of-sample analysis from the rolling windows method. The sample consisted of ten significant cryptocurrencies.FindingsDynamic optimization enhanced risk-adjusted return. Moreover, dynamic MDP and ERC could win the naïve strategy (1/N) under various estimation windows, and forecast lengths when the transaction cost ranging from 10 bps to 50 bps. The researcher also used another researcher's sample as a robustness test. Findings showed that dynamic optimization (MDP and ERC) outperformed the benchmark.Practical implicationsSophisticated investors may use the dynamic ERC and MDP to optimize cryptocurrencies portfolio.Originality/valueTo the best of the author’s knowledge, this is the first paper that studies the dynamic optimization on MVP, ERC and MDP using DCC and ADCC-GARCH with multivariate-t-distribution and rolling windows method.

scholarly journals L\'{e}vy Process, Proportional Transaction Costs and Foreign Exchange

2017 ◽  
Vol 9 (5) ◽  
pp. 133
Author(s):  
Obonye Doctor ◽  
Elias R. Offen ◽  
Edward M. Lungu
Keyword(s):  
Exchange Rate ◽  
Transaction Costs ◽  
Utility Function ◽  
Transaction Cost ◽  
Portfolio Selection ◽  
Foreign Exchange ◽  
Stock Price ◽  
Foreign Exchange Rate ◽  
Proportional Transaction Costs ◽  
Optimal Portfolio Selection

We analyse optimal portfolio selection problem of maximizing the utility of an agent who invests in a stock and money market account in the presence of proportional transaction cost $\lambda>0$ and foreign exchange rate. The stock price follows a (generalized) Geometric It\^{o}-L\'{e}vy process. The utility function is $U(c)={c^{p}}/{p}$ for all $c\geq0$, $p<1$, $p\neq0$.

scholarly journals Multi-Period Investment Strategies under Cumulative Prospect Theory

2019 ◽  
Vol 12 (2) ◽  
pp. 83 ◽  
Author(s):  
Liurui Deng ◽  
Traian A. Pirvu
Keyword(s):  
Numerical Analysis ◽  
Prospect Theory ◽  
Portfolio Selection ◽  
Cumulative Prospect Theory ◽  
Risky Asset ◽  
Model Parameters ◽  
Investment Strategies ◽  
Portfolio Constraints ◽  
Risk Criterion ◽  
Optimal Portfolio Selection

In this article, inspired by Shi et al., we investigate the optimal portfolio selection with one risk-free asset and one risky asset in a multiple period setting under the cumulative prospect theory (CPT) risk criterion. Compared with their study, our novelty is that we consider a stochastic benchmark and portfolio constraints. By performing a numerical analysis, we test the sensitivity of the optimal CPT investment strategies to different model parameters.

Financial capabilities development: essential discourse in social work

2019 ◽  
Vol 46 (10) ◽  
pp. 1234-1246
Author(s):  
Lambert K. Engelbrecht ◽  
Abigail Ornellas
Keyword(s):  
Sustainable Development ◽  
Social Work ◽  
Financial Literacy ◽  
Community Education ◽  
Work Practice ◽  
Well Being ◽  
Social Work Practice ◽  
Content Type ◽  
Vulnerable Households ◽  
Definition Of

Purpose Within a neoliberal environment, financial vulnerability of households has become an increasing challenge and there is a requirement of financial literacy education, a necessary activity to facilitate sustainable development and well-being. However, this is seldom a mainstream discourse in social work deliberations. The paper aims to discuss these issues. Design/methodology/approach First, introducing the neoliberal impact on financial well-being and capability for vulnerable households, the authors’ postulation is substantiated on a seven-point argument. The contexts of financially vulnerable households are sketched. Second, a conceptualisation of financial literacy is offered, and third, perspectives on and approaches to financial literacy as a fundamental capability are presented. This is followed by a theoretical foundation of community education as a practice model in social work to develop financial capabilities. In the fifth place, prevailing practices of Financial Capabilities Development (FCD) programmes are offered. Subsequently, the implications of a neoliberal environment for social work practice are examined. Findings The revised global definition of social work encourages the profession to understand and address the structural causes of social problems through collective interventions. As a response, it is argued that community education towards FCD of vulnerable households within a neoliberal environment should be an essential discourse in social development. Originality/value The authors reflect on the significance of FCD, highlighting its contribution towards human security and sustainable development. Although this paper draws on Southern African contexts, the discourse finds resonance in other contexts across the world.

Making investment decisions in stock markets using a forecasting-Markowitz based decision-making approaches

2019 ◽  
Vol 15 (2) ◽  
pp. 647-659 ◽  
Author(s):  
Zahra Moeini Najafabadi ◽  
Mehdi Bijari ◽  
Mehdi Khashei
Keyword(s):  
Decision Making ◽  
Time Series ◽  
Stock Markets ◽  
Time Series Prediction ◽  
Investment Decisions ◽  
Rate Of Return ◽  
Expected Returns ◽  
Prediction Methods ◽  
Content Type ◽  
Markowitz Model

Purpose This study aims to make investment decisions in stock markets using forecasting-Markowitz based decision-making approaches. Design/methodology/approach The authors’ approach offers the use of time series prediction methods including autoregressive, autoregressive moving average and artificial neural network, rather than calculating the expected rate of return based on distribution. Findings The results show that using time series prediction methods has a significant effect on improving investment decisions and the performance of the investments. Originality/value In this study, in contrast to previous studies, the alteration in the Markowitz model started with the investment expected rate of return. For this purpose, instead of considering the distribution of returns and determining the expected returns, time series prediction methods were used to calculate the future return of each asset. Then, the results of different time series methods replaced the expected returns in the Markowitz model. Finally, the overall performance of the method, as well as the performance of each of the prediction methods used, was examined in relation to nine stock market indices.

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