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- Yonggan Zhao
- 2004

In this paper, we develop a dynamic investment model maximizing the expected “utility” of excess return relative to a benchmark portfolio. Following the standard setting of continuous time framework for the securities market developed by Merton (1971) and others, we obtain an explicit formula for the optimal portfolio policy for a utility function… (More)

- Leonard C. MacLean, Rafael Sanegre, Yonggan Zhao, William T. Ziemba
- 2002

This paper discusses the allocation of capital over time with several risky assets. The capital growth log utility approach is used with conditions requiring that specific goals are achieved with high probability. The stochastic optimization model uses a disjunctive form for the probabilistic constraints, which identifies an outer problem of choosing an… (More)

- Yonggan Zhao, William T. Ziemba
- Math. Program.
- 2001

We present a new approach to asset allocation with transaction costs. A multiperiod stochastic linear programming model is developed where the risk is based on the worst case payoff that is endogenously determined by the model that balances expected return and risk. Utilizing portfolio protection and dynamic hedging, an investment portfolio similar to an… (More)

- Zhiping Chen, Gang Li, Yonggan Zhao
- 2015

The optimal investment policy for a standard multi-period mean–variance model is not time-consistent because the variance operator is not separable in the sense of the dynamic programming principle. With a nested conditional expectation mapping, we develop an investment model with time consistency in Markovian markets. Furthermore, we examine the… (More)

- Leonard C. MacLean, Yonggan Zhao, William T. Ziemba
- CIFEr
- 2003

The problem of misdirected investment strategies based on erroneous forecasts is the motivation for a Process Control (PC) approach to volatility and risk. Upper and lower limits on the capital accumulation process are used to determine i f the current investment strategy continues. If a limit is reached then rebalancing occurs, where retums are… (More)

This paper extends Merton’s continuous time (instantaneous) mean-variance analysis and the mutual fund separation theory. Given the existence of a Markovian state price density process, the optimal portfolios from concave utility maximization are instantaneously mean-variance efficient independent of the concave utility function’s form. The Capital Asset… (More)

Nonzero transaction costs invalidate the Black-Scholes (1973) arbitrage argument based on continuous trading. Leland (1985) developed a hedging strategy which modifies the Black-Scholes hedging strategy with a volatility adjusted by the length of the rebalance interval and the rate of the proportional transaction cost. Leland claimed that the exact hedge… (More)

- Yonggan Zhao, William T. Ziemba
- European Journal of Operational Research
- 2008

This paper presents a method for solving multiperiod investment models with downside risk control characterized by the portfolio’s worst outcome. The stochastic programming problem is decomposed into two subproblems: a nonlinear optimization model identifying the optimal terminal wealth distribution and a stochastic linear programming model replicating the… (More)

This paper presents a dynamic model of optimal currency returns with a hidden Markov regime switching process. We postulate a weak form of interest rate parity that the hedged risk premiums on currency investments are identical within each regime across all currencies. Both the in-sample and the out-ofsample data during January 2002 March 2005 strongly… (More)

- Leonard C. MacLean, Yonggan Zhao, William T. Ziemba
- Comput. Manag. Science
- 2011