Portfolios are designed to maximize a conservative market value or bid price for the portfolio. Theoretically this bid price is modeled as reflecting a convex cone of acceptable risks supporting an arbitrage free equilibrium of a two price economy. When risk acceptability is completely defined...

This paper presents an option positioning that allows us to infer forward variances from option portfolios. The forward variances we construct from equity index options help to predict (i) growth in measures of real economic activity, (ii) Treasury bill returns, (iii) stock market returns, and...

Allowing for correlated squared returns across two consecutive periods, portfolio theory for two periods is developed. This correlation makes it necessary to work with non-Gaussian models. The two period conic portfolio problem is formulated and implemented. This development leads to a mean ask...

Instantaneous risk is described by the arrival rate of jumps in log price relatives. Aggregate arrivals are infinite. There is then no concept of a mean return compensating risk exposure. The only risk-free instantaneous return is zero. All portfolios are subject to risk and there are only bad...

Optimal portfolios of variance swaps are constructed taking account of both autocorrelation and cross asset dependencies. Market prices of variance swaps are extracted from option surface calibrations. The methods developed permit simulation of cash flows to arbitrary portfolios of variance...