Questions tagged [optimization]

The selection of a best element from some set of available alternatives. Typically consists of maximizing or minimizing a real function by systematically choosing input values from within an allowed set and computing the value of the function.

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Model-independent dynamic portfolio optimization techniques

For a problem where we need to optimize the portfolio based on the data, going for Markowitz MPT has the following advantage: we only have to estimate mean and covariance to find optimal weights. I'd ...
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Transform MPT optimization problem

I am trying to teach myself about MPT and optimization. I understand that MPT solutions can be found using three equivalent optimization problems: Minimizing variance for given return limit ...
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Standard errors clustered along the time dimension in pooled panel logit model

I'm trying to estimate a logit model on pooled panel data set (unit of observation is firm-year). My dependant variable is default indicator and I have several macro variables as independant variables....
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Doubt on risk cost criterion

I want to minimize some kind of risk sensitive cost. But, I am confused what cost criterion should I use. I am aware of only expected exponential utility. I want to know what are the other such ...
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Max Likelihood via Marquardt Optimisation

I asked a related question here: How to apply Levenberg Marquardt to Max Likelihood Estimation I tried the approach suggested it works for some of the parameters but not the variances. I spoke to ...
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How do I determine what is a separate objective in a multi-objective portfolio optimization?

Is there a general rule to determining when to separate objectives when developing a multi-objective portfolio optimization? For example, one might start with a standard portfolio optimization of ...
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Approaches to check/validate the output of an optimization algorithm

Let's say we want to optimize the a function $f(x_1,\dots, x_n)$ with $(x_1, \dots , x_n) \in \mathbb{D}^n$. For the sake of simplicity let $\mathbb{D}^n$ be the unit sphere. We chose an optimization ...
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474 views

Call options portfolio: what would the underlyings' moments to be maximized?

Let you have only three underlyings, like SPY, TLT and GLD, and you want to buy $n_{1}$ Call options on SPY, $n_{2}$ Call options on TLT and $n_{3}$ Call options on GLD... with a limited budget, that ...
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Extreme and rare events affecting the market

There are extreme events affecting the high-probability [short-term] market such as lowering interest rates that rocket stock prices, even though such events are rare and the market's response can be ...
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Martingale optimal transport

I'm a student and currently studying martingale optimal transport for deriving upper and lower contract bounds but i happen struggling on the fact that in most papers , interest rates are not taken in ...
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Multiple tracking error constraints - is this problem convex?

Let's say I have a return forecast for each stock in the DAX index. I also have a covariance matrix for these 30 stocks. I want to solve for the 30 weights by maximising the forecast portfolio ...
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Monte carlo error and minimum variance hedge ratio

So I was running a monte carlo simulation for two assets and a portfolio consisting of 1 quantity of the first asset and short a fraction x of the second asset to hedge, where the fraction is ...
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setting up a inequality constraint that is dynamic

I have the following problem: typical mean variance minimize w_long(S)w_long.T + w_shortSw_short.T - lambda*mu I am having issue formulating this constraint in cvxopt lets say we have 10 securities ...
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Is optimising for the Final Wealth is the same as optimising log of growth rate in Kelly Criterion?

A direct, brute force approach could be used to find the Optimal Portfolio. Consider simple play. There's a biased coin with 55% probability of win. The simulator play as a single person with 100$ ...
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54 views

Spread option static replication

I have a methodology for hedging a spread option but not sure if it makes any sense, or if I can do any better. Happy to hear your advice! Suppose you have a spread option paying off $P_T(r_T,s_T)=(...
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How to backtest a sample of trades to optimize stop loss on losing trades and profit targets on winning trades?

I have a history of hundreds of executed trades. Given those trades, I want to know if there's a tool or framework that can help me figuring out: What would have been the most cost efficient stop ...
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How to modify EMSR when capacity for each fare class is different

In the normal EMSRa and EMSRb algorithms (EMSR= expected marginal seat revenue), each fare class is utilizes exactly 1 unit of capacity (for eg. one seat on a plane). But I have a similar problem for ...
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287 views

Mean-Variance Optimization Techniques with Multiple Asset Classes

Why does it make sense to use single-period Markowitz mean-variance optimization techniques when we're trying to figure out asset allocation across multiple asset classes (bonds, stocks, REITs, etc)? ...
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244 views

Discrete Hedging of Options

Assume that a stock $S_t$ follows simple geometric Brownian motion. Let's say we sold option whose payoff is $f(S_T)$. Now, we are only allowed to trade 2 times in the interval [0,T]. What kind of ...
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dynamic programming with serially independent returns

Book suggests that "asset returns are assumed to be serially independent, so wealth is a single state connecting one period to the next". I understand path dependency is lost in case of serial ...
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Linear programming cash match portfolio - how to formulate?

How would you formulate this linear program in standard form? (ie objective function and constraints). any help would be appreciated. I don't understand how to formulate this without having an ...

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