Performance analysis and optimal selection of large mean-variance portfolios under estimation risk

We study the consistency of sample mean-variance portfolios of arbitrarily high dimension that are based on Bayesian or shrinkage estimation of the input parameters as well as weighted sampling. In an asymptotic setting where the number of assets remains comparable in magnitude to the sample size, we provide a characterization of the estimation risk by providing deterministic equivalents of the portfolio out-of-sample performance in terms of the underlying investment scenario. The previous estimates represent a means of quantifying the amount of risk underestimation and return overestimation of improved portfolio constructions beyond standard ones. Well-known for the latter, if not corrected, these deviations lead to inaccurate and overly optimistic Sharpe-based investment decisions. Our results are based on recent contributions in the field of random matrix theory. Along with the asymptotic analysis, the analytical framework allows us to find bias corrections improving on the achieved out-of-sample performance of typical portfolio constructions. Some numerical simulations validate our theoretical findings

Decision Sciences, Economics, Finance, Business, Computing, and Big Data: Connections

This paper provides a review of some connecting literature in Decision Sciences, Economics, Finance, Business, Computing, and Big Data. We then discuss some research that is related to the six cognate disciplines. Academics could develop theoretical models and subsequent econometric and statistical models to estimate the parameters in the associated models. Moreover, they could then conduct simulations to examine whether the estimators or statistics in the new theories on estimation and hypothesis have small size and high power. Thereafter, academics and practitioners could then apply their theories to analyze interesting problems and issues in the six disciplines and other cognate areas

Robust control stability using the error loop

The paper briefly formulates the error loop as a tool for designing robust stability control systems in front of structured and unstructured uncertainties. The error loop indicates that a tool for accommodating such uncertainties is the noise estimator, which is the unique feedback channel from plant to control. It is shown that the causality constraint preventing perfect cancellation of causal uncertainties (unknown disturbance), makes also control law to play a role, offering a further degree of freedom. Employing asymptotic expansions of the closed-loop transfer functions, simple, explicit design formulae derive from stability inequalities: they relate closed-loop eigenvalues to model parameter and requirements. A simple example is provided from a ball and beam plan

Application of parameter estimation to aircraft stability and control: The output-error approach

The practical application of parameter estimation methodology to the problem of estimating aircraft stability and control derivatives from flight test data is examined. The primary purpose of the document is to present a comprehensive and unified picture of the entire parameter estimation process and its integration into a flight test program. The document concentrates on the output-error method to provide a focus for detailed examination and to allow us to give specific examples of situations that have arisen. The document first derives the aircraft equations of motion in a form suitable for application to estimation of stability and control derivatives. It then discusses the issues that arise in adapting the equations to the limitations of analysis programs, using a specific program for an example. The roles and issues relating to mass distribution data, preflight predictions, maneuver design, flight scheduling, instrumentation sensors, data acquisition systems, and data processing are then addressed. Finally, the document discusses evaluation and the use of the analysis results