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Portfolios of assets whose returns have the Gaussian mixture distribution are optimized in the static setting to find portfolio weights and efficient frontiers using the probability of outperforming a target return and Hodges’ modified Sharpe ratio objective functions. The sensitivities of optimal portfolio weights to the probability of the market being in(More)
This report proposes a method to price spread options on stochastically correlated underlying assets. Therefore it provides a more realistic approach towards correlation structure. We generalize a constant correlation tree model developed by Hull (2002) and extend it by the notion of stochastic correlation. The resulting tree model is recombining and easy(More)
Recent statistical analysis of a number of financial databases is summarized. Increasing agreement is found that logarithmic equity returns show a certain type of asymptotic behaviour of the largest events, namely that the probability density functions have power law tails with an exponent α ≈ 3.0. This behaviour does not vary much over different stock(More)
Despite its popularity in applied statistics, standard measures of shape have long been recognized to be unsatisfactory, due to their extreme sensitivity to outliers and poor sample efficiency. These difficulties seem to be largely overcome by a new system: the L-moments. During the last decade several authors have established the superior performance of(More)
In fire risk, correct description of topographic and fuel properties is critical to improve fire danger assessment and fire behaviour modelling. Many rural areas are now scanned using LIDAR sensors. In some of these areas the information registered by the sensor includes not only the geometric characteristics of the Earth’s surface, given by the coordinates(More)
This article tries to enhance traditional distribution paradigms for modelling asset returns by considering an α-stable regime-switching model. Our approach is to perform an empirical test of the α-stable regimeswitching model against other common methods in two settings: in risk management and in portfolio selection. Our empirical study will show that the(More)
Performance measurement that accurately reflects the goals of fund investors and managers has long been a topic of active discussion. Most modern performance measures differ from classical ones (such as the Sharpe ratio) in two key ways; first, they reflect the market practice of assessing performance against a benchmark, second, they account for the(More)
We assume a financial market governed by a diffusion process reverting to a stochastic mean which is itself governed by an unobservable ergodic diffusion, similar to those observed in electricity and other energy markets. We develop a moment method algorithm for the estimation of the parameters of both the observable process and the unobservable stochastic(More)
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