The active benchmark tracking portfolio problem is a investment strategy which aims to exceed the... more The active benchmark tracking portfolio problem is a investment strategy which aims to exceed the performance of a selected target benchmark and it is sometimes referred to as to active portfolio management. It is well known that many professional investors achieve this benchmarking strategy: The aim of this work is to solve the benchmark tracking problem implementing active strategies to manage a portfolio with the aim to outperform the benchmark index. We develop linear formulation portfolio optimization problems which maximize some performance measures. Then, introducing first and second order stochastic dominance constraints, we evaluate their impact in the invested portfolio wealth path in a high dimensionality framework.
Summary In this paper we propose to use a Markov chain in order to price contingent claims. In pa... more Summary In this paper we propose to use a Markov chain in order to price contingent claims. In particular, we describe a non parametric markovian approach to price American and European options. First, we discuss the risk neutral valuation of the non parametric approach. Secondly, we examine the problems of the computational complexity and of the stability with respect to
The aim of this study is to verify whether the average value at risk (AVaR) can be a good alterna... more The aim of this study is to verify whether the average value at risk (AVaR) can be a good alternative to the value at risk (VaR) for estimating portfolio losses, especially regarding tail events. To achieve this aim, we use a copula framework to estimate the dependence between the stock returns of a portfolio composed of 94 components of the S&P100 index to compute the AVaR and VaR and compare the results with respect to the Gaussian exponentially weighted moving average (EWMA). To compute the simulated returns, we employ the algorithm used by Biglova et al. (2014) in portfolio selection problems and then back test the model with Kupiec’s and Christoffersen’s tests. The results are coherent with the literature, in particular, the VaR computed both via the copula and via the EWMA seems to fail to provide an accurate risk measurement while the AVaR with the copula and EWMA appears to be more reliable.
The consequences of any extreme event can deteriorate any system at all levels: socially, economi... more The consequences of any extreme event can deteriorate any system at all levels: socially, economically, and operationally. The COVID-19 pandemic, caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), provides a good example of the tremendous impact that can be produced by such extreme events. To effectively measure and mitigate the impact of the COVID-19 pandemic and relaunch the Moroccan economy, policymakers need to determine which sectors have been most impacted. Due to the high level of uncertainty and complexity surrounding this health crisis, this study first develops a new technique for dealing with decision problems under uncertainty using exclusive-or (XOR) logic, called the XOR-analytic network process (XOR-ANP). Then, the proposed technique is adopted to assess the impact of COVID-19 on seven relevant sectors (tourism, transport, industrial, financial, agriculture, education, and healthcare) by considering social, operational, and economic dimensions. The key findings show that COVID-19 has a significant impact on Moroccan’s tourism, healthcare, and transport sectors, with respect to social-economic and operational dimensions by 30.99%, 21.81%, and 17.88%, respectively. These results indicate that most of the United Nations Sustainable Development Goals for 2030, such as “Healthy Lives”, “Decent Work” and “Economic Growth” have been severely impacted, thus, assistance and recovery are urgently needed.
In this paper, we propose a multivariate stochastic dominance comparison among different sectors ... more In this paper, we propose a multivariate stochastic dominance comparison among different sectors from the point of view of non-satiable risk-averse investors. In particular, we consider different distributional hypotheses for the multivariate distribution of financial sectors and we examine if there exist some dominance among them. In this framework we also discuss the asymptotic dominance between financial sectors. Finally, we empirically examine the choices of some non-satiable investors taking into account the proposed studies.
We propose semiparametric tests for portfolio efficiency, with respect to different Behavioral Fi... more We propose semiparametric tests for portfolio efficiency, with respect to different Behavioral Finance orderings. In particular, we focus on Markovitz order and Prospect order. We assume that return distributions belong to a scale invariant family, weakly determined by a finite number of parameters: a reward measure, a risk measure and other distributional parameters. We recall stochastic dominance rules for such family of distributions and provide efficiency conditions when the reward measure is isotonic with Markovitz or Prospect type of investors’ preference. Finally, we empirically test portfolio efficiency (in the sense of Markovitz and prospect orderings) when return distribution is uniquely determined by four parameters, using estimation function theory.
In this paper, we present alternative methods to evaluate the presence of the arbitrage opportuni... more In this paper, we present alternative methods to evaluate the presence of the arbitrage opportunities in the market. In particular, we investigate empirically the well-known put-call parity no-arbitrage relation and the state price density. First, we measure the violation of the put call parity as the difference in implied volatilities between call and put options that have the same strike price, the same maturity and the same underlying asset. Then, we examine the nonnegativity of the state price density since its negative values immediately correspond to the possibility of free-lunch in the market. We evaluate the effectiveness of the proposed approaches by an empirical analysis on S&P 500 index options data. Moreover, we propose different approaches to estimate the state price density under the classical hypothesis of the Black and Scholes model. In this context, we use two different methodologies to evaluate the conditional expectation and its relationship with the state price d...
In this paper, we propose a multivariate stochastic dominance comparison among different sectors ... more In this paper, we propose a multivariate stochastic dominance comparison among different sectors from the point of view of non-satiable risk-averse investors. In particular, we consider different distributional hypotheses for the multivariate distribution of financial sectors and we examine if there exist some dominance among them. In this framework we also discuss the asymptotic dominance between financial sectors. Finally, we empirically examine the choices of some non-satiable investors taking into account the proposed studies.
In this paper, we discuss and examine the portfolio optimization problems in the Italian fixed in... more In this paper, we discuss and examine the portfolio optimization problems in the Italian fixed income market considering two main sources of risk: prices risk and market risk. To achieve this aim, we propose a two-step optimization problem for two types of bonds. In particular, we manage the price risk implementing the classical immunization method and then, using the ex-post results from the optimal immunization problem, we are able to deal with market risk maximizing the portfolio wealth in a reward-risk framework. Adopting this approach, the paper then explores empirical applications on the Italian fixed income market using data for the period 2005-2015. Empirical results shows that the two-step optimization build efficient portfolios that minimize the price risk and the market risk. This ex-post analysis indicates the usefulness of the proposed methodology, maximizing the investor’s wealth and understanding the dynamics of the bonds.
Abstract:- In this paper, we deal and evaluate the comparison problem among different financial m... more Abstract:- In this paper, we deal and evaluate the comparison problem among different financial markets using risk/variability measures consistent with investors ’ preferences. First, we recall a recent classification of multivariate stochastic orderings consistent with preferences and we properly define the selection problem among different financial markets. Secondly, we propose an empirical financial application where multivariate stochastic orderings consistent with the non-satiable and risk averse investors ’ preferences are applied to compare and evaluate the possible dominance among the most developed market in the world (the US stock market) and two European markets (the German stock market and the UK stock market). In this context, we propose an ex-ante and an ex-post evaluation of the dominance among country stock markets. Moreover, in both cases we evaluate the dominance, considering the “oldest ” and “youngest ” firms of selected countries over previous decade. Key-Words...
The active benchmark tracking portfolio problem is a investment strategy which aims to exceed the... more The active benchmark tracking portfolio problem is a investment strategy which aims to exceed the performance of a selected target benchmark and it is sometimes referred to as to active portfolio management. It is well known that many professional investors achieve this benchmarking strategy: The aim of this work is to solve the benchmark tracking problem implementing active strategies to manage a portfolio with the aim to outperform the benchmark index. We develop linear formulation portfolio optimization problems which maximize some performance measures. Then, introducing first and second order stochastic dominance constraints, we evaluate their impact in the invested portfolio wealth path in a high dimensionality framework.
Summary In this paper we propose to use a Markov chain in order to price contingent claims. In pa... more Summary In this paper we propose to use a Markov chain in order to price contingent claims. In particular, we describe a non parametric markovian approach to price American and European options. First, we discuss the risk neutral valuation of the non parametric approach. Secondly, we examine the problems of the computational complexity and of the stability with respect to
The aim of this study is to verify whether the average value at risk (AVaR) can be a good alterna... more The aim of this study is to verify whether the average value at risk (AVaR) can be a good alternative to the value at risk (VaR) for estimating portfolio losses, especially regarding tail events. To achieve this aim, we use a copula framework to estimate the dependence between the stock returns of a portfolio composed of 94 components of the S&P100 index to compute the AVaR and VaR and compare the results with respect to the Gaussian exponentially weighted moving average (EWMA). To compute the simulated returns, we employ the algorithm used by Biglova et al. (2014) in portfolio selection problems and then back test the model with Kupiec’s and Christoffersen’s tests. The results are coherent with the literature, in particular, the VaR computed both via the copula and via the EWMA seems to fail to provide an accurate risk measurement while the AVaR with the copula and EWMA appears to be more reliable.
The consequences of any extreme event can deteriorate any system at all levels: socially, economi... more The consequences of any extreme event can deteriorate any system at all levels: socially, economically, and operationally. The COVID-19 pandemic, caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), provides a good example of the tremendous impact that can be produced by such extreme events. To effectively measure and mitigate the impact of the COVID-19 pandemic and relaunch the Moroccan economy, policymakers need to determine which sectors have been most impacted. Due to the high level of uncertainty and complexity surrounding this health crisis, this study first develops a new technique for dealing with decision problems under uncertainty using exclusive-or (XOR) logic, called the XOR-analytic network process (XOR-ANP). Then, the proposed technique is adopted to assess the impact of COVID-19 on seven relevant sectors (tourism, transport, industrial, financial, agriculture, education, and healthcare) by considering social, operational, and economic dimensions. The key findings show that COVID-19 has a significant impact on Moroccan’s tourism, healthcare, and transport sectors, with respect to social-economic and operational dimensions by 30.99%, 21.81%, and 17.88%, respectively. These results indicate that most of the United Nations Sustainable Development Goals for 2030, such as “Healthy Lives”, “Decent Work” and “Economic Growth” have been severely impacted, thus, assistance and recovery are urgently needed.
In this paper, we propose a multivariate stochastic dominance comparison among different sectors ... more In this paper, we propose a multivariate stochastic dominance comparison among different sectors from the point of view of non-satiable risk-averse investors. In particular, we consider different distributional hypotheses for the multivariate distribution of financial sectors and we examine if there exist some dominance among them. In this framework we also discuss the asymptotic dominance between financial sectors. Finally, we empirically examine the choices of some non-satiable investors taking into account the proposed studies.
We propose semiparametric tests for portfolio efficiency, with respect to different Behavioral Fi... more We propose semiparametric tests for portfolio efficiency, with respect to different Behavioral Finance orderings. In particular, we focus on Markovitz order and Prospect order. We assume that return distributions belong to a scale invariant family, weakly determined by a finite number of parameters: a reward measure, a risk measure and other distributional parameters. We recall stochastic dominance rules for such family of distributions and provide efficiency conditions when the reward measure is isotonic with Markovitz or Prospect type of investors’ preference. Finally, we empirically test portfolio efficiency (in the sense of Markovitz and prospect orderings) when return distribution is uniquely determined by four parameters, using estimation function theory.
In this paper, we present alternative methods to evaluate the presence of the arbitrage opportuni... more In this paper, we present alternative methods to evaluate the presence of the arbitrage opportunities in the market. In particular, we investigate empirically the well-known put-call parity no-arbitrage relation and the state price density. First, we measure the violation of the put call parity as the difference in implied volatilities between call and put options that have the same strike price, the same maturity and the same underlying asset. Then, we examine the nonnegativity of the state price density since its negative values immediately correspond to the possibility of free-lunch in the market. We evaluate the effectiveness of the proposed approaches by an empirical analysis on S&P 500 index options data. Moreover, we propose different approaches to estimate the state price density under the classical hypothesis of the Black and Scholes model. In this context, we use two different methodologies to evaluate the conditional expectation and its relationship with the state price d...
In this paper, we propose a multivariate stochastic dominance comparison among different sectors ... more In this paper, we propose a multivariate stochastic dominance comparison among different sectors from the point of view of non-satiable risk-averse investors. In particular, we consider different distributional hypotheses for the multivariate distribution of financial sectors and we examine if there exist some dominance among them. In this framework we also discuss the asymptotic dominance between financial sectors. Finally, we empirically examine the choices of some non-satiable investors taking into account the proposed studies.
In this paper, we discuss and examine the portfolio optimization problems in the Italian fixed in... more In this paper, we discuss and examine the portfolio optimization problems in the Italian fixed income market considering two main sources of risk: prices risk and market risk. To achieve this aim, we propose a two-step optimization problem for two types of bonds. In particular, we manage the price risk implementing the classical immunization method and then, using the ex-post results from the optimal immunization problem, we are able to deal with market risk maximizing the portfolio wealth in a reward-risk framework. Adopting this approach, the paper then explores empirical applications on the Italian fixed income market using data for the period 2005-2015. Empirical results shows that the two-step optimization build efficient portfolios that minimize the price risk and the market risk. This ex-post analysis indicates the usefulness of the proposed methodology, maximizing the investor’s wealth and understanding the dynamics of the bonds.
Abstract:- In this paper, we deal and evaluate the comparison problem among different financial m... more Abstract:- In this paper, we deal and evaluate the comparison problem among different financial markets using risk/variability measures consistent with investors ’ preferences. First, we recall a recent classification of multivariate stochastic orderings consistent with preferences and we properly define the selection problem among different financial markets. Secondly, we propose an empirical financial application where multivariate stochastic orderings consistent with the non-satiable and risk averse investors ’ preferences are applied to compare and evaluate the possible dominance among the most developed market in the world (the US stock market) and two European markets (the German stock market and the UK stock market). In this context, we propose an ex-ante and an ex-post evaluation of the dominance among country stock markets. Moreover, in both cases we evaluate the dominance, considering the “oldest ” and “youngest ” firms of selected countries over previous decade. Key-Words...
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Papers by Sergio Ortobelli Lozza