Zero Covariation Returns

Abstract

Asset returns are modeled by bilateral gamma processes with zero covariations. Covariances are then observed to be consequences of randomness in variations. Support vector machine regressions on prices are employed to model the implied randomness. The contributions of support vector machine regressions are evaluated using residual economic cost reductions. Both local and global mean reversion and momentum are represented by drift dependence on price levels. Portfolios maximizing prudential lower valuations are constructed on simulated path spaces. They are also shown to outperform classical alternatives.