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Financial Risk Modeling with Markov Chains

  • Arturo Leccadito
  • Sergio Ortobelli Lozza
  • Emilio Russo
  • Gaetano Iaquinta
Conference paper
Part of the Lecture Notes in Computer Science book series (LNCS, volume 4224)

Abstract

This paper proposes markovian models in portfolio theory and risk management. In a first analysis, we describe discrete time optimal allocation models. Then, we examine the investor’s optimal choices either when returns are uniquely determined by their mean and variance or when they are modeled by a Markov chain. Moreover we propose different models to compute VaR and CVaR when returns are modeled by a Markov chain.

Keywords

Markov Chain Portfolio Selection Return Distribution Portfolio Return Short Selling 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2006

Authors and Affiliations

  • Arturo Leccadito
    • 1
  • Sergio Ortobelli Lozza
    • 2
  • Emilio Russo
    • 3
  • Gaetano Iaquinta
    • 2
  1. 1.Cass Business SchoolLondonU.K.
  2. 2.University of BergamoBergamoItaly
  3. 3.CARISMABrunel UniversityWest LondonU.K.

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