Riccardo Cesari

Benchmarking, portfolio insurance and technical analysis: a Monte Carlo comparison of dynamic strategies of asset allocation

Abstract This paper makes an extensive simulation comparison of popular dynamic strategies of asset allocation. For each strategy, alternative measures have been calculated for risk, return and risk-adjusted performance (Sharpe ratio, Sortino ratio, return at risk). Moreover, the strategies are compared in different market situations (bull, bear, no-trend markets) and with different market volatility, taking into account transaction costs and discrete rebalancing of portfolios. The simulations show a dominant role of constant proportion strategies in bear and no-trend markets and a preference for benchmarking strategies in bull markets. These results are independent of the volatility level and the risk-adjusted measure adopted.

A generalized measure of competition

Using the conditional probabilities of the passage of customers from one firm to another, a new, implementable measure of market competition is obtained which generalizes the classical Hirschman-Herfindahl index.

EPR and pulsed ENDOR study of intermediates from reactions of aromatic azides with group 13 metal trichlorides

Summary The reactions of group 13 metal trichlorides with aromatic azides were examined by CW EPR and pulsed ENDOR spectroscopies. Complex EPR spectra were obtained from reactions of aluminium, gallium and indium trichlorides with phenyl azides containing a variety of substituents. Analysis of the spectra showed that 4-methoxy-, 3-methoxy- and 2-methoxyphenyl azides all gave ‘dimer’ radical cations [ArNHC6H4NH2]+• and trimers [ArNHC6H4NHC6H4NH2]+• followed by polymers. 4-Azidobenzonitrile, with its electron-withdrawing substituent, did not react. In general the aromatic azides appeared to react most rapidly with AlCl3 but this reagent tended to generate much polymer. InCl3 was the least reactive group 13 halide. DFT computations of the radical cations provided corroborating evidence and suggested that the unpaired electrons were accommodated in extensive π-delocalised orbitals. A mechanism to account for the reductive conversion of aromatic azides to the corresponding anilines and thence to the dimers and trimers is proposed.

A suggestion for simplifying the theory of asset prices

Using an ordinal approach to utility, in the spirit of Hicks (1962, 1967a), it is possible to greatly simplify the theory of asset prices. The basic assumption is to summarize any probability distribution into its moments so that preferences over distributions can be mapped into preferences over vectors of moments. This implies that assets, like Lancaster’s (1966) consumption goods, are bundles of characteristics and can be directly priced, at the margin, in terms of the market portfolio. Expected utility is not required and both St.Petersburg and Allais paradoxes may be easily solved.

Competition in Banking Markets: Lessons from the Italian Case

The 1980s have witnessed an increasing interest in the banking industry. Many studies, mainly theoretical, have analysed the peculiarity of competition in banking markets. This interest stems, on the one hand, from the increase in competition fostered by recent deregulation in domestic markets and, on the other hand, from the expectations about the competition between national systems that will be determined by the implementation of the Second Banking Co-ordination Directive.

Risk-Return Optimization for Life Insurance Portfolios

Two Fong-Vasicek immunization results are discussed and applied in relation to life insurance fixed income portfolios. Firstly, we analyzed the contribution of Fong-Vasicek (J. Finance 39(5):1541–1546, 1984) providing a lower bound on the “shortfall” of an immunized asset portfolio in the face of an arbitrary shock to the term structure of interest rates. A “passive” strategy minimizing immunization (i.e., reinvestment) risk emerges, such that the exposure to an arbitrary variation of the shape of the term structure is minimized with respect to the “M-squared” risk measure representing the cash-flows dispersion around the duration matching target. Secondly, Fong and Vasicek (Financ. Anal. J. 39(5):73–78, 1983) risk-return approach is generalized in a model which seeks for only a partial risk minimization in exchange for more return potential. The empirical application hints at a perspective of “active” management, highlighting which segregated funds can be re-positioned along the efficient frontier, at a chosen level of the firm’s risk appetite.

All Stocks Half the Time? A Short Account of the Life-Cycle Controversy

Life-cycle investment is a popular asset allocation strategy suggesting to progressively reduce the optimal risky exposure of the portfolio as long as the final investment date (retirement) approaches. This paper provides a short account of the long-dated life-cycle controversy, examining the old reasons provided to justify or demolish the strategy and the more recent theoretical and empirical evidence against or in favor of its adoption.

Markets, Money and Capital: A suggestion for simplifying the theory of asset prices

Using an ordinal approach to utility, in the spirit of Hicks (1962, 1967a), it is possible to greatly simplify the theory of asset prices. The basic assumption is to summarize any probability distribution into its moments so that preferences over distributions can be mapped into preferences over vectors of moments. This implies that assets, like Lancasters (1966) consumption goods, are bundles of characteristics and can be directly priced, at the margin, in terms of the market portfolio. Expected utility is not required and both St.Petersburg and Allais paradoxes may be easily solved.

The Bank: Matematica, Economia e Responsabilità Sociale per un nuovo millennio

Nel febbraio 1995, Nick Leeson, un giovane trader dell’ufficio di Singapore della blasonata Barings Bank, “la banca della Regina”, fondata nel 1762 e scampata a Napoleone, alla rivoluzione argentina, e a due guerre mondiali, porta al fallimento l’intera banca in cui lavora a causa dell’enorme esposizione in futures al SIMEX (Singapore Mercantile Exchange) che, eludendo i controlli, egli ha accumulato rilanciando una speculazione al rialzo sul Nikkei. La perdita supera 1.3 miliardi di dollari (830 milioni di sterline; [11, 5]). Il rialzo si avrà solo 4 mesi dopo (Fig. 1). Il gruppo bancario olandese ING acquisterà la Barings alla cifra simbolica di una sterlina. Nel marzo 2000 tocca i massimi la bolla speculativa della New Economy, che per anni ha trasformato in montagne di soldi ogni iniziativa avviata nel campo delle nuove tecnologie, dei computer, delle telecomunicazioni e della information technology (IT). Dal mese successivo la bolla scoppia (Fig. 2) facendo magicamente sparire nel nulla enormi capitali scritti sulla carta e quindi sull’acqua.