Mean-Variance Optimization

Markowitz’s mean-variance portfolio theory has long served as a pillar of modern finance, but in its classical form, it assumes a serene world of continuous returns and static market regimes. This serenity, however, shatters when real-world markets swing between boom and bust, triggering sudden and severe asset price shocks. The new paper by Shi and Xu takes a bold step in modeling this turbulence by embedding regime-switching-induced stock price jumps directly into the mean-variance framework. ...

Classic finance assumes that the past doesn’t matter — only the present state of the market matters for decisions. But in a new paper from researchers at Imperial College and Oxford, a kernel-based framework for trading strategy design exposes how this assumption leads to suboptimal choices. Their insight: memory matters, and modern tools can finally make use of it. ...