The selection of a best element from some set of available alternatives. Typically consists of maximizing or minimizing a real function by systematically choosing input values from within an allowed set and computing the value of the function.

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2answers
302 views

MPT: Adding constraint on minimum asset weight

I'm new to finance in general, and recently read about Modern Portfolio Theory. Now I'm wondering how to add the following constraint on asset weights: Each asset weight $w_i$ should either be $w_i ...
3
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0answers
361 views

Is there a standard method of scaling alpha forecasts to t-cost estimates?

Given a set of monthly alpha forecasts (i.e. standardized z-scores from a multi-factor return model) and a non-linear market impact model (or more specifically, its piecewise-linear approximation), is ...
12
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3answers
3k views

Techniques to optimize the placement of orders in market making strategy?

Market making often requires placing and canceling a lot of orders. You have to buy and sell nearly simultaneously, so you need to move orders pretty often to beat other traders. But I would like to ...
3
votes
1answer
174 views

Parameter estimation using martingale measures - include real world data?

Please note: I posted this in nuclearphynance first, but didn't get any replies. For desks which sell exotics it is common practice (as far as I know it) to calibrate the model (Stochastic ...
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1answer
1k views

Optimizing a portfolio of ETFs

I am aware of how to do mean-variance or minimum-variance portfolio optimization with constraints like weights must add to 1.0 no short sells max weight in any ticker using basic quadratic ...
2
votes
3answers
718 views

Can I perform an asset allocation optimization if assets are perfectly uncorrelated?

(Here is a link to the original post) I received this interesting problem from a friend today: Assume that you are a portfolio manager with $10 million to allocate to hedge funds. The due diligence ...
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2answers
1k views

How to apply risk-parity portfolio construction to a dollar-neutral portfolio?

Long-only risk-parity portfolios have proliferated in recent years. An optimized long-only risk-parity portfolio requires that the asset weight * marginal contribution to risk of the asset is ...
6
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2answers
1k views

optimal re-balancing strategy with asynchronous alpha signal

You want to construct an optimal portfolio. Let's say you have an alpha signal that arrives with some period (say quarterly). The alpha signal predicts arithmetic returns one-year ahead. You have ...
4
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2answers
433 views

Choice of prior as a shrinkage target in portfolio construction?

There's various research showing how priors such as the minimum variance portfolio turn out to be a surprisingly effective shrinkage target in portfolio construction. The sell point of these priors ...
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3answers
1k views
15
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1answer
1k views

Portfolio optimization with monte carlo sampling from predictive distribution

Let's say we have a predictive distribution of expected returns for N assets. The distribution is not normal. We can interpret the dispersion in the distribution as reflection of our uncertainty (or ...
7
votes
2answers
2k views

robust portfolio optimization re-balancing with transaction costs

The optimal re-balancing strategy takes account of factors including i) objective function, ii) current portfolio weights, iii) expected return vector containing updated views/alpha forecasts, iv) ...
7
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4answers
1k views

Library to solve optimization problems

I'm working with C# and I start being bored writing optimization algorithm. Do you know of any free library containing this sort of algorithms. In particular I'm cutrently working with Semidefit ...