A locally-built, LLM-digested index of recent arXiv papers in quant finance, geometry/topology, and statistical ML — keyword search served straight from SQLite on this machine.
Unified approach to Merton's portfolio problem using Pontryagin's principles.
Investigates how trading boundaries change with transaction costs in portfolio selection.
Paper solves Merton's portfolio problem in a non-Markovian, non-semimartingale model.
This paper investigates Merton's portfolio problem in a rough stochastic environment described by Volterra Heston model. The model has a non-Markovian and non-semimartingale structure. By considering an auxiliary random process, we solve the portfolio optimization problem with the martingale optimality principle. Optim…
Investigates optimal investment strategies in financial markets with jumps.
Solves wealth maximization problem using variational analysis.
Solves optimal control for stochastic processes with absorbing states.
This paper studies the properties of discrete time stochastic optimal control problems associated with portfolio selection. We investigate if optimal continuous time strategies can be used effectively for a discrete time market after a straightforward discretization. We found that Merton's strategy approximates the per…
Study shows Merton model limits to Poisson process with log-normal intensity, improving default portfolio prediction.
Optimizes dynamic investment portfolios with correlated jumps.
Combines absolute and relative wealth in portfolio optimization with power utility functions.
Investors' strategic trading affects asset prices, modeled as a game.
Bayesian approach to portfolio selection reduces pessimism in frequent trading.
The Noether theorem is extended to stochastic control problems using contact symmetries.
We derive a closed form portfolio optimization rule for an investor who is diffident about mean return and volatility estimates, and has a CRRA utility. The novelty is that confidence is here represented using ellipsoidal uncertainty sets for the drift, given a volatility realization. This specification affords a simpl…
In this paper we consider a modification of the classical Merton portfolio optimization problem. Namely, an investor can trade in financial asset and consume his capital. He is additionally endowed with a one unit of an indivisible asset which he can sell at any time. We give a numerical example of calculating the opti…
Study optimal portfolio strategy with sporadic bankruptcy for isoelastic utility.
New optimal investment strategies for finance and insurance using Hawkes-based models.
This thesis investigates Merton's portfolio problem under two different rough Heston models, which have a non-Markovian structure. The motivation behind this choice of problem is due to the recent discovery and success of rough volatility processes. The optimisation problem is solved from two different approaches: firs…
Derives optimal control conditions using calculus of variations.
Agent maximizes utility with pathwise constraint on portfolio value.
Study portfolio optimization with transaction costs and recursive preferences.
Optimal healthcare investment timing in a dynamic model with mortality risk.
Introduces RPU to explain randomization preference in dynamic settings.
This paper presents several models addressing optimal portfolio choice, optimal portfolio liquidation, and optimal portfolio transition issues, in which the expected returns of risky assets are unknown. Our approach is based on a coupling between Bayesian learning and dynamic programming techniques that leads to partia…
Researchers find a timing error in Black-Scholes-Merton option pricing model.
The paper extends Merton's problem by adding benchmark tracking, finding optimal strategies.
We study the Merton problem of optimal consumption-investment for the case of two investors sharing a final wealth. The typical example would be a husband and wife sharing a portfolio looking to optimize the expected utility of consumption and final wealth. Each agent has different utility function and discount factor.…
Solves infinite horizon portfolio problem with path-dependent labor income.
Management of the portfolios containing low liquidity assets is a tedious problem. The buyer proposes the price that can differ greatly from the paper value estimated by the seller, the seller, on the other hand, can not liquidate his portfolio instantly and waits for a more favorable offer. To minimize losses in this …
We study the finite horizon Merton portfolio optimization problem in a general local-stochastic volatility setting. Using model coefficient expansion techniques, we derive approximations for the both the value function and the optimal investment strategy. We also analyze the `implied Sharpe ratio' and derive a series a…
This paper extends the classical consumption and portfolio rules model in continuous time (Merton 1969, 1971) to the framework of decision-makers with time-inconsistent preferences. The model is solved for different utility functions for both, naive and sophisticated agents, and the results are compared. In order to so…
This paper investigates the investment behaviour of a large unregulated financial institution (FI) with CARA risk preferences. It shows how the FI optimizes its trading to account for market illiquidity using an extension of the Almgren-Chriss market impact model of multiple risky assets. This expected utility optimiza…
High precision analytical approximation is proposed for variance-covariance based risk allocation in a portfolio of risky assets. A general case of a single-period multi-factor Merton-type model with stochastic recovery is considered. The accuracy of the approximation as well as its speed are compared to and shown to b…
This paper extends the Black-Scholes-Merton model to more complex market scenarios.
While defaults are rare events, losses can be substantial even for credit portfolios with a large number of contracts. Therefore, not only a good evaluation of the probability of default is crucial, but also the severity of losses needs to be estimated. The recovery rate is often modeled independently with regard to th…
The study uses the Merton model to estimate PD and finds a phase transition affecting convergence speed.
Deep learning improves option pricing in incomplete markets.
Paper tackles time inconsistency in portfolio management with stochastic volatility and power utility.
Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures (standard deviation, VaR and Expected Shortfall) as well as allocation of risk down to…
Study optimal portfolio strategies with time-varying discount rates.
Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures (standard deviation, VaR and Expected Shortfall) as well as allocation of risk down to…
Unified model integrates Bachelier and Black-Scholes-Merton for asset pricing.
In this paper, optimal consumption and investment decisions are studied for an investor who can invest in a fixed interest rate bank account and a stock whose price is a log normal diffusion. We present the method of the HJB equation in order to explicitly solve problems of this type with modifications such as a fixed …
Study portfolio optimization with partial info and drawdown constraints using deep learning.
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference can be crucial in managing systemic risk of a portfolio. In this paper we genera…
Combines option pricing and portfolio theory for optimal hedging.
We consider the classical Merton problem of lifetime consumption-portfolio optimization problem with small proportional transaction costs. The first order term in the asymptotic expansion is explicitly calculated through a singular ergodic control problem which can be solved in closed form in the one-dimensional case. …