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1answer
17 views

Full Kelly portfolios having same weights as tangency portfolios

I'm currently comparing empirically the differences between Markowitz and Kelly portfolios. I calculated the Kelly weights for monthly return observations over 10 years for a sample of 50 stocks from ...
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0answers
28 views

Definition of sharpe ratio maximising and variance minimising portfolios

In this paper, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2226985, in the derivation of the mean variance efficient portfolio using lagrangians in the appendix, on page 29, the two portfolios ...
2
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1answer
60 views

Matlab Portfolio Optimization with bid ask spread

I'm trying to find the optimal portfolio of options and stock which minimizes the standard deviation of the portfolio returns but also taking into consideration the bid and ask prices of the assets. ...
5
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1answer
86 views

Sharpe Maximization under Quadratic Constraints

When doing Sharpe optimization $$ \max_x \frac{\mu^T x}{\sqrt{x^T Q x}} $$ there is a common trick (section 5.2) used to put the problem in convex form. You add a variable $\kappa$ such that $x = ...
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1answer
28 views

Understanding portfolio weights and purchasing stock in modern portfolio theory

Recently I've been learning about the markowitz algorithm. It's pretty interesting, but I'm curious how we apply this in practice. Lets say I have some optimal portfolio: $R_p = x_aR_a + x_bR_b$ ...
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3answers
213 views

Finding Expression for Optimal Markowitz Weights

So there are two assets with return rates $r_1$ and $r_2$ which have identical variances and a correlation coefficient $p$. The risk free rate is $r_f$. I need to find an expression for the optimal ...
2
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0answers
36 views

Residual Covariance Matrix, and MVO for Residual Variance and Alpha

My overall goal is to find an efficient frontier using QP in terms of $\alpha$ and residual variance ($\omega^2$) for a portfolio $P$ given a benchmark $B$. We know the equation for residual variance ...
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2answers
96 views

Modern portfolio theory in practice

I am wondering about the Markowitz theory of portfolio construction in practice. Hence, if one wants to know the efficient frontier, what variances can one use. The only method that I can think is the ...
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0answers
102 views

Tangent portfolio weights without short sales?

Consider a mean-variance investor in a world with a risk-free asset. Let $R_f>0$ be the return of the risk-free asset, $\mathbb{E}(R_i)>R_f$ the expected return of the risky asset $i$ and ...
2
votes
1answer
85 views

Markowitz Mean-Variance Implied Returns

What is the closed form solution for the following inverse Markowitz problem? Given a mean-variance optimized fully invested portfolio $X$, a risk aversion parameter $\lambda$ and a var-covar ...
1
vote
1answer
242 views

short-sale constraint with nonpositive-definite matrix in portfolio optimization

I need help about portfolio optimization in R. I have inverted matrix and I want to use it as an input in portfolio optimization. It was non-positive definite before I have handled it. In portfolio ...
7
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4answers
483 views

Does Modern Portfolio Theory align with EMH?

I came to the conclusion that in literature Markowitz' Portfolio Theory is believed to be compliant with the Efficient Market Hypothesis. The weakest form states that the current price fully ...
2
votes
1answer
177 views

What are the assumptions of portfolio optimisation with higher moments?

I was wondering whether there are a set of assumptions for portfolio optimisation with higher moments (including kurtosis and skewness) as there are for regular mean-variance optimisation?
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1answer
116 views

What is the smart way to reallocate money?

We are running a portfolio of fund managers in our fund. When one of the managers hits the max DD constraint we pull money from this manager. This may happen in the middle of the allocation period and ...
4
votes
3answers
351 views

Are minimum-risk and minimum-variance portfolios equivalent?

When reading a paper by DeMiguel and Nogales (2007; http://papers.ssrn.com/sol3/papers.cfm?abstract_id=911596), I came across the following formulation: Comparing the proposed minimum-risk ...