Zero covariation returns View Full Text


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Article Info

DATE

2018-06-05

AUTHORS

Dilip B. Madan, Wim Schoutens

ABSTRACT

Asset returns are modeled by locally bilateral gamma processes with zero covariations. Covariances are then observed to be consequences of randomness in variations. Support vector machine regressions on prices are employed to model the implied randomness. The contributions of support vector machine regressions are evaluated using reductions in the economic cost of exposure to prediction residuals. Both local and global mean reversion and momentum are represented by drift dependence on price levels. Optimal portfolios maximize conservative portfolio values calculated as distorted expectations of portfolio returns observed on simulated path spaces. They are also shown to outperform classical alternatives. More... »

PAGES

5

References to SciGraph publications

  • 2017-06-26. Measure distorted arrival rate risks and their rewards in PROBABILITY, UNCERTAINTY AND QUANTITATIVE RISK
  • 2017-08-16. On dynamic spectral risk measures, a limit theorem and optimal portfolio allocation in FINANCE AND STOCHASTICS
  • 2014-09-04. Asset pricing theory for two price economies in ANNALS OF FINANCE
  • 1988-09. Uniqueness in law for pure jump Markov processes in PROBABILITY THEORY AND RELATED FIELDS
  • 2006-04-21. Option Pricing for Pure Jump Processes with Markov Switching Compensators in FINANCE AND STOCHASTICS
  • 2012-04-25. A two price theory of financial equilibrium with risk management implications in ANNALS OF FINANCE
  • 2005-10. Option pricing and Esscher transform under regime switching in ANNALS OF FINANCE
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