Portfolio Optimization under Lower Partial Risk Measures

Portfolio management using lower partial risk (downside risk) measures is attracting more attention of practitioners in recent years. The purpose of this paper is to review important characteristics of these riskmeasures and conduct simulation using four alternative measures, lower semi-variance, lower semi-absolute deviation, first order below targetrisk and conditional value-at-risk.We will show that these risk measures are useful to control downside risk whenthe distribution of assets is non-symmetric. Further, we will propose a computational scheme to resolve the difficultyassociated with solving a large dense linear programming problems resulting from these models. We will demonstrate that this method can in fact solve problems consisting of10⁴ assets and 10⁵ scenarios within a practical amount of CPU time.     

EXISTENCE OF A NONNEGATIVE EQUILIBRIUM PRICE VECTOR IN THE MEAN-VARIANCE CAPITAL MARKET

We derive a necessary and sufficient condition for the existence of a nonnegative equilibrium price vector under which the total demand and supply of each asset balances in the standard mean-variance capital market. Also, we give an explicit formula for such a price vector. This formula shows that the price of assets is an increasing function of , the weighted average of the requested rate of return of individual investors, which tends to infinity as approaches the expected rate of return on the market portfolio. Further, we construct a macroeconomic index which gives information about the soundness of the capital market.     

Organizational knowledge creation theory: A first comprehensive test

Confirmatory factor analyses were conducted to test Nonaka's ((1994) Organization Science, Vol. 5, No. 1, pp. 14–37) a priori model of organizational knowledge creation with data collected from 105 Japanese middle managers. The results provide strong support for viewing organizational knowledge creation as a higher-order construct comprised of four knowledge conversion processes: socialization, externalization, combination, and internalization.     

Failure Discrimination and Rating of Enterprises by Semi-Definite Programming

We propose a new method forfailure discrimination and rating of enterprises using financialdata compiled from their balance sheets. No particular distributional assumption is made on the underlying data. Our method automatically discriminates and rates many enterprises using mathematical programming methods. We separate multi-dimensional data byhyperplane and hyper-ellipsoid, so that we can interpretthe results of classification from the geometric point of view. Theproblem to be solved here is a linear programming problem orsemi-definite programming problem which can be solved efficiently byinterior point algorithms. Numerical simulations usingreal data show that hyper-ellipsoid separation generates a result which can be used for practical purposes.     

On the de-facto convex structure of a least square problem for estimating the term structure of interest rates

We will show that the objective function of a constrained least square problem for estimating the term structure of the interest rates discussed in [4] is in fact convex in the feasible region defined by a set of linear constraints. This means that the algorithm developed in [4], which uses a linear or quadratic approximation to the objective function, generates a globally optimal solution of a constrained least square problem.     

An International Portfolio Optimization Model Hedged with Forward Currency Contracts

We will propose a new method for constructing an optimal portfolio in which the fund is allocated to assets and currencies of several countries. Traditionally, two or three stage method is adopted in this field. However, it neglects the risk associated with variations of the rate of return of individual assets and the exchange rate of currencies. Instead, the new method enables one to simultaneously determine the optimal amount of fund to be allocated to each asset and the amount of the forward contracts on currencies. The resulting optimization problem is apparently a nonconvex minimization problem due to the existence of product terms in the objective function. We will show, however, that a globally optimal solution can be calculated by a standard algorithm in an efficient way. Also we will demonstrate that the new method leads to a substantially better result using historical data of U.S., Japan and Germany.     

Applications of the Integrated Approach to International Portfolio Optimization

In a recent paper, we used a stock-bond integrated model to construct aninternationally diversified portfolio using historical data of stocksand bonds of Japan and the U.S. The result of computational experiments using this integrated approach showed that it can serve as a morereliable and lessexpensive method than the traditional asset allocation strategy. In this paper, we present the results of subsequent experiments using the dataof more than 700 stocks and bonds of six countries: U.S., U.K., Germany, France, Hong Kong, and Japan. In these experiments, we compared the direct historical data method and the betapricing method in order to estimate the expected rate of return of assets. Anotherimportant feature is the use of a new strategy for hedging the exchange raterisk by using historical data to calculate the hedge rate on currencies. Computational experiments show a remarkable improvement over the resultspresented in [9]. Also, the result of the simulation shows that the beta pricing model leads to a better and more stable performance than the direct historical data method.     

A constrained least square approach to the estimation of the term structure of interest rates

This paper proposes a new practical method for estimating forward rate curves using bond prices available in the market. It is intended to improve the least square estimation method proposed by Carleton and Cooper by imposing additional constraints to guarantee the smoothness of the forward rate curves. The resulting problem is a nonconvex minimization problem, for which we will propose an efficient algorithm for calculating an approximate optimal solution. Computational experiments show that this method can efficiently generate smooth forward rate curves without increasing the residual errors in terms of least square fitting. Also, we will compare this result with an alternative and more efficient constrained least absolute deviation method.     

Topsy-turvy Uranium World

MARKET STRUCTURE, BARGAINING POWER AND RESOURCE PRICE FORMATION, by Walter C. Labys WESTERN EUROPE AND THE NEW INTERNATIONAL ECONOMIC ORDER: REPRESENTATIVE SAMPLES OF EUROPEAN PERSPECTIVES, edited by Ervin Laszlo and Joel Kurtzman TECHNOLOGY AND SCIENCE IN THE PEOPLE'sREPUBLIC OF CHINA, by Jon Sigurdson FUTURE MARKETS FOR CONSULTANCY: PROFESSIONAL BUSINESS DEVELOPMENT ABROAD, by Reginald Bidgood INTERNATIONAL DIVERSIFICATION AND THE MULTINATIONAL CORPORATION, by Alan M. Rugman IMPLICATIONS OF JAPAN'sEMERGING SERVICE ECONOMY, by Kazuo Nukazawa, Keidanren Paper No. 8 STRUCTURE OF THE NIGERIAN ECONOMY, edited by F.A. Olaloku UNITED STATES TAXATION AND DEVELOPING COUNTRIES, edited by Robert Hellawell THE INTERNATIONAL ECONOMY AND THE NATIONAL INTEREST, by Irving Millman Grossack FOREIGN ENTERPRISE IN DEVELOPING COUNTRIES, by Isaiah Frank BRITAIN'sECONOMIC PERFORMANCE, edited by Richard E. Caves and Lawrence B. Krause     

Evaluating Russia’s trade patterns

This article offers empirical evidence on the major trends in the nature of Russia’s trade and on the determinants of the different types of trade: horizontal intra-industry trade (HIIT), vertical intra-industry trade (VIIT) and inter-industry trade (INT). The estimation results of gravity-type log-linear models suggest that the combined economic size of Russia and the trading partner has a positive effect, while the distance between the two countries has a negative effect for all types of trade. They also suggest that FDI has a significant effect on all types of trade; however, the effect varies according to whether the partner country is a member of the CIS/CU or not, and whether the FDI is outward or inward.