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Rongju Zhang

Publications and source records attributed to Rongju Zhang.

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DiffColor: Toward High Fidelity Text-Guided Image Colorization with Diffusion Models

Recent data-driven image colorization methods have enabled automatic or reference-based colorization, while still suffering from unsatisfactory and inaccurate object-level color control. To address these issues, we propose a new method called DiffColor that leverages the power of pre-trained diffusion models to recover vivid colors conditioned on a prompt text, without any additional inputs. DiffColor mainly contains two stages: colorization with generative color prior and in-context controllable colorization. Specifically, we first fine-tune a pre-trained text-to-image model to generate colorized images using a CLIP-based contrastive loss. Then we try to obtain an optimized text embedding aligning the colorized image and the text prompt, and a fine-tuned diffusion model enabling high-quality image reconstruction. Our method can produce vivid and diverse colors with a few iterations, and keep the structure and background intact while having colors well-aligned with the target language guidance. Moreover, our method allows for in-context colorization, i.e., producing different colorization results by modifying prompt texts without any fine-tuning, and can achieve object-level controllable colorization results. Extensive experiments and user studies demonstrate that DiffColor outperforms previous works in terms of visual quality, color fidelity, and diversity of colorization options.

cs.CV

Dynamic portfolio optimization with liquidity cost and market impact: a simulation-and-regression approach

We present a simulation-and-regression method for solving dynamic portfolio allocation problems in the presence of general transaction costs, liquidity costs and market impacts. This method extends the classical least squares Monte Carlo algorithm to incorporate switching costs, corresponding to transaction costs and transient liquidity costs, as well as multiple endogenous state variables, namely the portfolio value and the asset prices subject to permanent market impacts. To do so, we improve the accuracy of the control randomization approach in the case of discrete controls, and propose a global iteration procedure to further improve the allocation estimates. We validate our numerical method by solving a realistic cash-and-stock portfolio with a power-law liquidity model. We quantify the certainty equivalent losses associated with ignoring liquidity effects, and illustrate how our dynamic allocation protects the investor's capital under illiquid market conditions. Lastly, we analyze, under different liquidity conditions, the sensitivities of certainty equivalent returns and optimal allocations with respect to trading volume, stock price volatility, initial investment amount, risk-aversion level and investment horizon.

q-fin.PM

Skewed target range strategy for multiperiod portfolio optimization using a two-stage least squares Monte Carlo method

In this paper, we propose a novel investment strategy for portfolio optimization problems. The proposed strategy maximizes the expected portfolio value bounded within a targeted range, composed of a conservative lower target representing a need for capital protection and a desired upper target representing an investment goal. This strategy favorably shapes the entire probability distribution of returns, as it simultaneously seeks a desired expected return, cuts off downside risk and implicitly caps volatility and higher moments. To illustrate the effectiveness of this investment strategy, we study a multiperiod portfolio optimization problem with transaction costs and develop a two-stage regression approach that improves the classical least squares Monte Carlo (LSMC) algorithm when dealing with difficult payoffs, such as highly concave, abruptly changing or discontinuous functions. Our numerical results show substantial improvements over the classical LSMC algorithm for both the constant relative risk-aversion (CRRA) utility approach and the proposed skewed target range strategy (STRS). Our numerical results illustrate the ability of the STRS to contain the portfolio value within the targeted range. When compared with the CRRA utility approach, the STRS achieves a similar mean-variance efficient frontier while delivering a better downside risk-return trade-off.

q-fin.PM

Optimal FX Hedge Tenor with Liquidity Risk

We develop an optimal currency hedging strategy for fund managers who own foreign assets to choose the hedge tenors that maximize their FX carry returns within a liquidity risk constraint. The strategy assumes that the offshore assets are fully hedged with FX forwards. The chosen liquidity risk metric is Cash Flow at Risk (CFaR). The strategy involves time-dispersing the total nominal hedge value into future time buckets to maximize (minimize) the expected FX carry benefit (cost), given the constraint that the CFaRs in all the future time buckets do not breach a predetermined liquidity budget. We demonstrate the methodology via an illustrative example where shorter-dated forwards are assumed to deliver higher carry trade returns (motivated by the historical experience where AUD is the domestic currency and USD is the foreign currency). We also introduce a tenor-ranking method which is useful when this assumption fails. We show by Monte Carlo simulation and by backtesting that our hedging strategy successfully operates within the liquidity budget. We provide practical insights on when and why fund managers should choose short-dated or long-dated tenors.

q-fin.RM

Local Control Regression: Improving the Least Squares Monte Carlo Method for Portfolio Optimization

The least squares Monte Carlo algorithm has become popular for solving portfolio optimization problems. A simple approach is to approximate the value functions on a discrete grid of portfolio weights, then use control regression to generalize the discrete estimates. However, the classical global control regression can be expensive and inaccurate. To overcome this difficulty, we introduce a local control regression technique, combined with adaptive grids. We show that choosing a coarse grid for local regression can produce sufficiently accurate results.

q-fin.PM