Risk and Utility in Portfolio Optimization

Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk, conflating uncertainty with risk. There have been many subsequent attempts to alleviate that weakness which, typically, combine utility and risk. We present here a modification of MPT based on the inclusion of separate risk and utility criteria. We define risk as the probability of failure to meet a pre-established investment goal. We define utility as the expectation of a utility function with positive and decreasing marginal value as a function of yield. The emphasis throughout is on long investment horizons for which risk-free assets do not exist. Analytic results are presented for a Gaussian probability distribution. Risk-utility relations are explored via empirical stock-price data, and an illustrative portfolio is optimized using the empirical data.Comment: 10 pages, 1 figure, presented at 2002 Conference on Econophysics in Bali Indonesi

Collective Origin of the Coexistence of Apparent RMT Noise and Factors in Large Sample Correlation Matrices

Through simple analytical calculations and numerical simulations, we demonstrate the generic existence of a self-organized macroscopic state in any large multivariate system possessing non-vanishing average correlations between a finite fraction of all pairs of elements. The coexistence of an eigenvalue spectrum predicted by random matrix theory (RMT) and a few very large eigenvalues in large empirical correlation matrices is shown to result from a bottom-up collective effect of the underlying time series rather than a top-down impact of factors. Our results, in excellent agreement with previous results obtained on large financial correlation matrices, show that there is relevant information also in the bulk of the eigenvalue spectrum and rationalize the presence of market factors previously introduced in an ad hoc manner.Comment: 4 pages with 3 figur

The Political Economy of Myanmar's Transition

This is an Author's Original Manuscript of an article whose final and definitive form, the Version of Record, has been published in the JOURNAL OF CONTEMPORARY ASIA, 07 Feb 2013, copyright Taylor & Francis, available online at: http://www.tandfonline.com/10.1080/00472336.2013.764143.Since holding elections in 2010, Myanmar has transitioned from a direct military dictatorship to a formally democratic system and has embarked on a period of rapid economic reform. After two decades of military rule, the pace of change has startled almost everyone and led to a great deal of cautious optimism. To make sense of the transition and assess the case for optimism, this article explores the political economy of Myanmar's dual transition from state socialism to capitalism and from dictatorship to democracy. It analyses changes within Myanmar society from a critical political economy perspective in order to both situate these developments within broader regional trends and to evaluate the country's current trajectory. In particular, the emergence of state-mediated capitalism and politico-business complexes in Myanmar's borderlands are emphasised. These dynamics, which have empowered a narrow oligarchy, are less likely to be undone by the reform process than to fundamentally shape the contours of reform. Consequently, Myanmar's future may not be unlike those of other Southeast Asian states that have experienced similar developmental trajectories

Wake response to an ocean-feedback mechanism: Madeira Island case study

This discussion focused on the numerical study of a wake episode. The Weather Research and Forecasting model was used in a downscale mode. The current literature focuses the discussion on the adiabatic dynamics of atmospheric wakes. Changes in mountain height and consequently on its relation to the atmospheric inversion layer should explain the shift in wake regimes: from a 'strong-wake' to a 'weak-wake' scenario. Nevertheless, changes in SST variability can also induce similar regime shifts. Increase in evaporation, contributes to increase convection and thus to an uplift of the stratified atmospheric layer, above the critical height, with subsequent internal gravity wave activity.Comment: Under review proces

WARNING: Physics Envy May Be Hazardous To Your Wealth!

The quantitative aspirations of economists and financial analysts have for many years been based on the belief that it should be possible to build models of economic systems - and financial markets in particular - that are as predictive as those in physics. While this perspective has led to a number of important breakthroughs in economics, "physics envy" has also created a false sense of mathematical precision in some cases. We speculate on the origins of physics envy, and then describe an alternate perspective of economic behavior based on a new taxonomy of uncertainty. We illustrate the relevance of this taxonomy with two concrete examples: the classical harmonic oscillator with some new twists that make physics look more like economics, and a quantitative equity market-neutral strategy. We conclude by offering a new interpretation of tail events, proposing an "uncertainty checklist" with which our taxonomy can be implemented, and considering the role that quants played in the current financial crisis.Comment: v3 adds 2 reference

Have greenhouse gases intensified the contrast between wet and dry regions?

While changes in land precipitation during the last 50 years have been attributed in part to human influences, results vary by season, are affected by data uncertainty and do not account for changes over ocean. One of the more physically robust responses of the water cycle to warming is the expected amplification of existing patterns of precipitation minus evaporation. Here, precipitation changes in wet and dry regions are analyzed from satellite data for 1988–2010, covering land and ocean. We derive fingerprints for the expected change from climate model simulations that separately track changes in wet and dry regions. The simulations used are driven with anthropogenic and natural forcings combined, and greenhouse gas forcing or natural forcing only. Results of detection and attribution analysis show that the fingerprint of combined external forcing is detectable in observations and that this intensification of the water cycle is partly attributable to greenhouse gas forcing

Zur Quantifizierung der Risikoprämien deutscher Versicherungsaktien im Kontext eines Multifaktorenmodells

Vorgestellt wird eine empirische Studie, welche den Zusammenhang zwischen Rendite und Risiko für ein Sample deutscher Versicherungsaktien im Zeitraum 1975-1998 untersucht. Als Methode wurde ein Multifaktorenmodell mit makroökonomischen Faktoren verwendet. Je nach Untersuchungszeitraum beläuft sich der Anteil der erklärten Varianz auf 9,29% bis 13,62%. Es konnte eine signifikanter negativer Einfluß zwischen der Veränderung des allgemeinen Zinsniveaus und den Risikoprämien von Versicherungsaktien identifiziert werden. Weiterhin ist Wechselkurses der DM zum US-Dollar signifikant

Do dividends signal future earnings in the Nordic stock markets?

We study the informational content of dividends on three Nordic civil law markets, where other simultaneous but blurring motives for dividends may be weaker. Using aggregate data on real earnings per share and payout ratios, long time series from 1969 to 2010, and methodologies which address problems of endogeneity, non-stationarity and autocorrelation (including a Vector Error Correction Model approach), we find evidence on dividend signaling in Nordic markets. However, we also find heterogeneity in the relationship between dividends and earnings on markets similar in many respects, suggesting that even small variations in the institutional surroundings may be important for the results

Peculiarities of selecting the gearboxes and wheel shift coefficients in the optimization of drive gear transmissions

В якості вузлового моменту оптимізаційного проектування тягових зубчастих передач залізничного рухомого складу виділено процедуру обґрунтованого вибору коефіцієнтів зміщення шестерень і коліс за рахунок використання відповідних блокувальних контурів. Обґрунтовано актуальність досліджень з розроблення методичного забезпечення для раціонального отримання блокувальних контурів при проектуванні тягових зубастих передач. Представлені розроблені математичні залежності, що пов’язують фіксовані величині обмежувальних і контрольованих параметрів передач з числами зубців і коефіцієнтами зміщення шестерні та колеса. Їх використання дозволяє отримувати конкретні блокувальні контури для вибору коефіцієнтів зміщення шестерні та колеса при оптимізаційному проектуванні тягових зубчастих передач з різними початковими параметрами. Наведено приклад практичної реалізації розроблених математичних залежностей при отриманні блокувального контуру для вибору коефіцієнтів зміщення шестерні та колеса тягової зубчастої передачі сучасного магістрального вантажного тепловозу. Зроблено висновок про доцільність використання запропонованого методичного забезпечення при оптимізаційному проектуванні тягових зубчатих передач.As a key point in the optimization design of traction gears of the railway rolling stock, a procedure for a reasonable choice of the coefficients for the displacement of gears and wheels is provided by using the appropriate blocking circuits. The relevance of studies on the development of methodological support for the rational production of blocking contours in the design of traction-toothed gears is substantiated. The developed mathematical dependences connecting the fixed values of the limiting and controlled parameters of the gears with the numbers of the teeth and the gearing coefficients of the gears and wheels are presented. Their use makes it possible to obtain specific blocking contours for the selection of gear and wheel bias coefficients in the optimization design of traction gears with different initial parameters. An example of the practical implementation of the developed mathematical dependencies in obtaining a blocking contour for selecting the gear displacement coefficients and the traction gear wheel of a modern mainline freight locomotive is given. The conclusion is made about the expediency of using the proposed methodological support in the optimization design of traction gears

A survey of shipping finance research: setting the future research agenda

Financing shipping related investment projects has always been a focal area of debate and research within the international maritime industry since access to funding can determine the competitiveness of a capital-intensive business as well as its success or failure under adverse market conditions. This paper provides, for the first time, a comprehensive and structured survey of all published research in the area of shipping finance and investment. The review spans approximately four decades (1979-2018) of empirical evidence, including 162 studies published in 48 scholarly journals, complemented with select books and book chapters. The study provides a bibliometric analysis and comprehensive synthesis of existing research offering an invaluable source of information for both the academic community and business practice, shaping the future research agenda in shipping finance and investment