Posts Tagged ‘varianza


Combo: Minima Varianza + R

Quantivity esta generando muy buen contenido a lo loco! Nada mejor que redireccionarlo. La tematica: portfolios de minima varianza y rotación sectorial. Hasta aca nada superlativo, el premio esta en los codigos de R!

Minimum Variance Portfolios

Minimum Variance Sector Rotation


Paper: Volatilidad y largo plazo

Are Stocks Really Less Volatile in the Long Run?


According to conventional wisdom, annualized volatility of stock returns is lower over long horizons than over short horizons, due to mean reversion induced by return predictability. In contrast,we find that stocks are substantially more volatile over long horizons from an investor’s perspective. This perspective recognizes that parameters are uncertain, even with two centuries of data, and that observable predictors imperfectly deliver the conditional expected return. Mean reversion contributes strongly to reducing long-horizon variance, but it is more than offset by various uncertainties faced by the investor, especially uncertainty about the expected return. The same uncertainties reduce desired stock allocations of long-horizon investors contemplating target-datefunds.

Link al Paper


Paper: Estrategias de cobertura y procesos Lévy

Hedging Strategies and Minimal Variance Portfolios for European and Exotic Options in a Levy Market


This paper presents hedging strategies for European and exotic options in a Lévy market. By applying Taylor’s theorem, dynamic hedging portfolios are constructed under different market assumptions, such as the existence of power jump assets or moment swaps. In the case of European options or baskets of European options, static hedging is implemented. It is shown that perfect hedging can be achieved. Delta and gamma hedging strategies are extended to higher moment hedging by investing in other traded derivatives depending on the same underlying asset. This development is of practical importance as such other derivatives might be readily available. Moment swaps or power jump assets are not typically liquidly traded. It is shown how minimal variance portfolios can be used to hedge the higher order terms in a Taylor expansion of the pricing function, investing only in a risk-free bank account, the underlying asset, and potentially variance swaps. The numerical algorithms and performance of the hedging strategies are presented, showing the practical utility of the derived results.

Link al Paper


Paper: Varianza promedio y retornos de mercado

Average Stock Variance and Market Returns: Evidence of Time-Varying Predictability at the Daily Frequency

We develop a daily measure of average stock variance and study whether it can predict market returns one day ahead. Using a time-invariant prediction model we find a robust predictive relation between these variables which cannot be used to profitably time the market. A closer look reveals that the strength and even the direction of the predictive relation vary significantly over short periods of time. Moreover, a simple timing strategy that exploits this variation over time significantly outperforms the market buy-and-hold strategy in terms of the mean-variance tradeoff. The evidence shows that predictability is stronger during business-cycle contractions and that our timing strategy is profitable because it avoids losses during bad times. Last, parameter breaks occur very frequently over short periods of time, and not only when the economy switches the phase of the business cycle. Our results suggest that idiosyncratic risk matters in asset pricing and that its effect is time varying.

Link al Paper


5ta Reunion del QF Club

El viernes pasado se realizo la 5ta reunión del Club. Se presentaron 2 excelentes trabajos.

Leonardo Vicchi diserto sobre Metodos de Reduccion de Varianza en simulaciones de Monte Carlo para valuacion de derivados de volatilidad.

Mientras que Lucia Cipolina expuso Estimación de la Estructura Temporal de Tasas de Interés en el caso Argentino.


Paper: Portfolio no a la Markowitz

Behavioral Portfolio Theory


We develop a positive behavioral portfolio theory and explore its implications for portfolio construction and security design. Portfolios within the behavioral framework resemble layered pyramids. Layers are associated with distinct goals and covariances between layers are overlooked. We explore a simple two-layer portfolio. The downside protection layer is designed to prevent financial disaster. The upside potential layer is designed for a shot at becoming rich. Behavioral portfolio theory has predictions that are distinct from those of meanvariance portfolio theory. In particular, behavioral portfolio theory is consistent with the reluctance to have short and margined positions, an inverse relation between the bond/stock ratio and portfolio riskiness, the existence of the home bias, the use of labels such as “growth” and “income,” the preference for securities with floors on returns, and the purchase of lottery tickets.
Link al Paper

Fun & Finance


Fun & Finance Rollover

"It is hard to be finite upon an infinite subject, and all subjects are infinite." Herman Melville

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July 2020



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