Francesco Cesarone

Roma Tre University | UNIROMA3 · Department of Business Studies

COVID-19 has spread worldwide, affecting people’s health and the socio-economic environment. Such a pandemic is responsible for people’s deteriorated mood, pessimism, and lack of trust in the future. This paper presents a portfolio decision analysis framework for policymakers aiming at recovering the population from psychological distress. Specific...

In this paper, we investigate the features and the performance of the risk parity (RP) portfolios using the mean absolute deviation (MAD) as a risk measure. The RP model is a recent strategy for asset allocation that aims at equally sharing the global portfolio risk among all the assets of an investment universe. We discuss here some existing and n...

Passive asset management has emerged in the last decades because, in most cases, active portfolio managers are not able to beat their benchmark. Skewed distributions are witnessed every day in financial markets and the need to model them is gaining momentum. This article deals with passive management of skewed distributed assets and suggests how to...

In this paper, we propose an outlier detection algorithm for multivariate data based on their projections on the directions that maximize the Cumulant Generating Function (CGF). We prove that CGF is a convex function, and we characterize the CGF maximization problem on the unit n-circle as a concave minimization problem. Then, we show that the CGF...

We rely on bilevel programming to model the problem of financial service providers that, in order to meet stakeholders’ demands and regulatory requirements, aim at incentivizing accounts’ holders to construct ESG-oriented portfolios so that the overall ESG impact of the firm is optimized, while the preferences of accounts’ owners are still satisfie...

Value-at-risk is one of the most popular risk management tools in the financial industry. Over the past 20 years, several attempts to include VaR in the portfolio selection process have been proposed. However, using VaR as a risk measure in portfolio optimization models leads to problems that are computationally hard to solve. In view of this, few...

Portfolio selection models based on second-order stochastic dominance (SSD) have the advantage of providing portfolios that reflect the behavior of risk-averse investors without the need to specify the utility function. Several scholars apply SSD conditions with respect to a reference distribution, typically that of the market index, to find its do...

This paper deals with a copula-based stochastic dependence problem in the context of financial risks. We discuss the financial framework for assessing the theoretical up-front value of government guarantees on bank liabilities. EU States widely use these contracts to improve the financial system’s stability and manage the banking sector in crisis s...

VI edition of the workshop on Finance and Markets: geopolitics and energy security

Among professionals and academics alike, it is well known that active portfolio management is unable to provide additional risk-adjusted returns relative to their benchmarks. For this reason, passive wealth management has emerged in recent decades to offer returns close to benchmarks at a lower cost. In this article, we first refine the existing re...

Over the last few decades, growing attention to the topic of social responsibility has affected financial markets and institutional authorities. Indeed, recent environmental, social, and financial crises have inevitably led regulators and investors to take into account the sustainable investing issue; however, the question of how Environmental, Soc...

Over the last few decades, a growing attention to the Social Responsibility topic has affected financial markets and institutional authorities. Indeed, recent environmental, social and financial crises have inevitably led regulators and investors to take into account the sustainable investing issue. However, the question of how Environmental, Socia...

Among professionals and academics alike, it is well known that active portfolio managementis unable to provide additional risk-adjusted returns relative to their benchmarks. For thisreason, passive wealth management has emerged in recent decades to offer returns close tobenchmarks at a lower cost. In this article, we first refine the existing resul...

Value-at-Risk is one of the most popular risk management tools in the financial industry. Over the past 20 years several attempts to include VaR in the portfolio selection process have been proposed. However, using VaR as a risk measure in portfolio optimization models leads to problems that are computationally hard to solve. In view of this, few p...

In this paper, we investigate the features and the performance of the Risk Parity (RP) portfolios using the Mean Absolute Deviation (MAD) as a risk measure. The RP model is a recent strategy for asset allocation that aims at equally sharing the global portfolio risk among all the assets of an investment universe. We discuss here some existing and n...

One of the main issues in portfolio selection models consists in assessing the effect of the estimation errors of the parameters required by the models on the quality of the selected portfolios. Several studies have been devoted to this topic for the minimum variance and for several other minimum risk models. However, no sensitivity analysis seems...

A recent popular approach to portfolio selection aims at diversifying risk by looking for the so called Risk Parity portfolios. These are defined by the condition that the risk contributions of all assets to the global risk of the portfolio are equal. The Risk Parity approach has been originally introduced for the volatility risk measure. In this p...

The book contains more than 100 examples and exercises, together with MATLAB codes providing the solution for each of them. The road map of the book is as follows. Chapter 1 is devoted to an introduction to the MATLAB language and development environment, for programming, numerical calculation and visualization applied to simple calculus and financ...

Several contributions in the literature argue that a significant in-sample risk reduction can be obtained by investing in a relatively small number of assets in an investment universe. Furthermore, selecting small portfolios seems to yield good out-of-sample performances in practice. This analysis provides further evidence that an appropriate prese...

The classical approaches to optimal portfolio selection call for finding a feasible portfolio that optimizes a risk measure, or a gain measure, or a combination thereof by means of a utility function or of a performance measure. However, the optimization approach tends to amplify the estimation errors on the parameters required by the model, such a...

The risk assessment of a new product is one of the most critical activities performed by the operational risk management of a company operating in the financial sector. There are few reference points for the operational risk management to assess the riskiness of a new product, due both to the lack of operational loss data and to the inexperience of...

Following the research strands of enhanced index tracking and of portfolio performance measures optimization, we propose to choose, among the feasible asset portfolios of a given market, the one that maximizes the geometric mean of the differences between its risk and gain and those of a suitable reference benchmark, such as the market index. This...

Expected utility theory is nowadays accepted as the standard for rational choice among risky assets. However, as Harry Markowitz recently pointed out, the problem of how the maximum expected utility along the risk–return portfolio efficient frontiers approximates the exact maximum expected utility is still open. This paper shows that some popular r...

Risk Parity (RP), also called equally weighted risk contribution, is a recent approach to risk diversification for portfolio selection. RP is based on the principle that the fractions of the capital invested in each asset should be chosen so as to make the total risk contributions of all assets equal among them. We show here that the Risk Parity ap...

In this paper, we propose an extensive empirical analysis on three categories of portfolio selection models with very different objectives: minimization of risk, maximization of capital diversification, and uniform distribution of risk allocation. The latter approach, also called Risk Parity or Equal Risk Contribution (ERC), is a recent strategy fo...

One of the fundamental principles in portfolio selection models is minimization of risk through diversification of the investment. However, this principle does not necessarily translate into a request for investing in all the assets of the investment universe. Indeed, following a line of research started by Evans and Archer almost fifty years ago,...

One recent and promising strategy for Enhanced Indexation is the selection of portfolios that stochastically dominate the benchmark. We propose here a new type of approximate stochastic dominance rule which implies other existing approximate stochastic dominance rules. We then use it to find the portfolio that approximately stochastically dominates...

A large number of portfolio selection models have appeared in the literature since the pioneering work of Markowitz. However, even when computational and empirical results are described, they are often hard to replicate and compare due to the unavailability of the datasets used in the experiments. We provide here several datasets for portfolio sele...

We propose a naive model to forecast ex ante value-at-risk (VaR), using a shrinkage estimator between realized volatility estimated on past return time series as well as implied volatility quoted in the market. Implied volatility is often indicated as the operator's expectation about future risk, while historical volatility straightforwardly repres...

In this paper we propose an extensive empirical analysis on three different categories of portfolio selection models, each focused on different objectives: minimization of risk, maximization of capital diversification, and uniform distribution of risk allocation. This latter approach, also called Risk Parity (RP) or Equal Risk Contribution (ERC), i...

Several risk–return portfolio models take into account practical limitations on the number of assets to be included in the portfolio and on their weights. We present here a comparative study, both from the efficiency and from the performance viewpoint, of the Limited Asset Markowitz (LAM), the Limited Asset mean semi-absolute deviation (LAMSAD), an...

Enhanced indexation (EI) is the problem of selecting a portfolio that should produce excess return with respect to a given benchmark index. In this work, we propose a linear bi-objective optimization approach to EI that maximizes average excess return and minimizes underperformance over a learning period. Our model can be efficiently solved to opti...

Risk Parity (RP), also called equally weighted risk contribution, is a recent approach to risk diversification in portfolio selection. RP is based on the principle that the fractions of the capital invested in each asset should be chosen so as to make the total risk contributions of all assets equal among them.We show here that the Risk Parity appr...

One of the fundamental principles in portfolio selection models is minimization of risk through diversification of the investment. This seems to require that in a given working universe, or market, the investment should be spread among all (or almost all) the available assets. Indeed, this is what some classical investment strategies, like Equally-...

Several portfolio selection models take into account practical limitations on the number of assets to include and on their weights in the portfolio. We present here a study of the Limited Asset Markowitz (LAM) model, where the assets are limited with the introduction of quantity and cardinality constraints. We propose a completely new approach for...

Several risk-return portfolio models take into account practical limitations on the number of assets to include in the portfolio and on their weights. We present here a comparative study, both from the efficiency and from the performance viewpoint, of the Limited Asset Markowitz (LAM), the Limited Asset Mean Semi-Absolute Deviation (LAMSAD) and the...

Enhanced Indexation is the problem of selecting a portfolio that should produce excess return with respect to a given benchmark index. In this work we propose a linear bi-objective optimization approach to Enhanced Indexation that maximizes average excess return and minimizes underperformance over a learning period. Our model can be efficiently sol...

A key issue for applying portfolio selection models in practice is an appropriate choice of learning and holding periods. For this reason some studies in the literature have been devoted to the sensitivity of the selected portfolio performance with respect to either the learning or the holding period. In this paper, an empirical sensitivity analysi...

We propose a linear bi-objective optimization to the problem of finding a portfolio that maximizes average excess return with respect to a benchmark index while minimizing underperformance over a learning period. We establish some theoretical results linking classical No Arbitrage conditions to the existence of a feasible portfolio for our model th...

Enhanced Index Tracking is the problem of selecting a portfolio that should generate excess return with respect to a benchmark index, Here we propose a large-size linear optimization model for Enhanced Index Tracking that selects an optimal portfolio according to a new stochastic dominance criterion and we devise an efficient constraint generation...

Several portfolio selection models take into account practical limitations on the number of assets to include and on their weights in the portfolio. We present here a study of the Limited Asset Markowitz (LAM), of the Limited Asset Mean Absolute Deviation (LAMAD) and of the Limited Asset Conditional Value-at-Risk (LACVaR) models, where the assets a...

The Markowitz mean-variance optimization model is a widely used tool for portfolio selection. However, in order to capture real world restrictions on actual investments, a Limited Asset Markowitz (LAM) model with the introduction of quantity and cardinality constraints has been considered. These two constraints have been modelled by adding binary v...

We analyse the anomalously warm summer months in the Mediterranean region using the 850 hPa temperature, T850, extracted from the ERA-40 reanalysis, in order to find how these anomalies are related to the anomaly of the jet stream over the Euro-Atlantic area. In this region, the westerly jet has two main branches: the Scandinavian jet and the Medit...

China is the third largest Country (after Russia and Canada) extending from the West Pacific Ocean to the Tibet plateau, where the climate ranges from the monsoonal regime in the east to the extreme dryness in the west, and from tropical in the south to subarctic in the north. Traditionally, a large part of the population is dedicated to the agricu...

In this note, we present an extension of the Fick’s second law by introducing a memory formalism based on derivatives of fractional order to take into account the passive diffusion process across two different membranous systems, i.e., a biological membrane, where its structural complexity suggests the introduction of a space-dependent diffusion co...