Title: COMFORT-Able finance: Extensions of a paradigm for large-scale modeling of asset returns and portfolio construction
Authors: Marc Paolella - University of Zurich (Switzerland) [presenting]
Abstract: There are several aspects of financial asset portfolio construction relevant for success. First, the methodology should be applicable to a reasonably large number of assets, at least on the order of 100. Second, calculations should be computationally feasible, straightforward, and fast. Third, realistic transaction costs need to be taken in account for the modeling paradigm to be genuinely applicable. Fourth, and arguably most importantly, the proposed methods should demonstrably outperform benchmark models such as the equally weighted portfolio, Markowitz IID and Markowitz using the DCC-GARCH model. A fifth ``icing on the cake'' is that the underlying stochastic process assumption is mathematically elegant, statistically coherent, and allows analytic computation of relevant risk measures for both passive and active risk management. The model structure to be shown, referred to as ``COMFORT'', satisfies all these criteria. Various potential new ideas will also be discussed, with the aim of enticing and motivating other researchers to collaborate and/or improve upon the shown investment vehicles.