The professional management of an investment portfolio of various securities (shares, bonds and other securities) in order to meet specified investment goals. The process includes the specification of investment objectives and constraints, choice of asset mix, formulation of portfolio strategy, ...

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3answers
52 views

Budget Constraint in Sharpe Ratio Optimization

I am a math student and I am trying to understand the budget constraint in Sharpe Ratio optimization for portfolio design. Recall the budget constraint requires that the sum of the portfolio weights ...
2
votes
1answer
115 views

Value at Risk from Delta of a single asset portfolio

I am trying to figure out the following, for me unfamiliar type of question: Given is a single asset portfolio: the Delta of the portfolio is 15, the value of the asset is 10 and the daily volatility ...
3
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0answers
119 views

On the interface between Quant finance and actuarial-science/insurance-math

Actuaries (at least in Europe) are frequently severily lacking in quant finance topics. At best they are familiar with B&S model. People going into quant finane or striving to become a quant on ...
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0answers
32 views

evaluating portfolio performance without knowing the amount held on cash accounts

I would like to evaluate the performance of a portfolio mananger. I know his trades, and the initial portfolio holdings. I do not know, however the amount held on his cash account. That is, I ...
1
vote
2answers
314 views

Why does it “say” portfolio diversification not suitable during market turmoil?

Currently I am trying to get a hold of MPT, asset allocation and related applications. While reading a particular resource, it says diversification works best for "normal" financial markets and ...
0
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1answer
71 views

How do I simulate stock prices for a 10 asset portfolio, over a period of 10 years in MATLAB? [closed]

If I have given vectors for return and volatility (i.e. I have two 1x10 vectors), and I assume at first that their correlation is 0 (meaning my covariance-variance matrix is just diagonal), how do I ...
3
votes
1answer
43 views

Why does my posterior mean differs from Idzorek's results?

I have implemented two different expressions (Idzorek p.6, Walters p.51) of a posterior mean return calculation within a Black-Litterman framework. My results are the same, irrespective of the ...
1
vote
1answer
78 views

How to score a portfolio's diversity based on security returns?

What is the best way to score a portfolio's diversity based on it's returns covariance matrix? I know that if my portfolio has two securities and their returns' correlation coefficient is -1 that is ...
4
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0answers
160 views

Optimization: Factor model versus asset-by-asset model

In portfolio management one often has to solve problems of the quadratic form $$ w^T \Sigma w + w^T c \rightarrow Min $$ with portfolio weights $w \in \mathbb{R}^N$ a constant $c \in \mathbb{R}^N$ and ...
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0answers
48 views

I want to optimize an equity portfolio for the four central moments can anyone help me with the problem formulation

Basically i am confused as to which formula to use for portfolio skew and kurtosis and how to use the same in the optimization problem. I would also like to know the options available regarding the ...
4
votes
1answer
92 views

tail correlation during crisis

I am seeking a recommendation for an empirical paper on increased correlations of returns during the 2008 financial crisis, or 'tail correlation' during the crisis, if that is different, or whatever ...
3
votes
1answer
124 views

What is the correct Stutzer index and Sharpe ratio relation, assuming a normal returns distribution?

Assuming the returns distribution is normal, then there is a relation between Stutzer index and Sharpe ratio. However, I found in the following paper 2 different equation: Paper I (page 10-11)‎ ...
2
votes
1answer
246 views

In Mean-Variance Analysis, why not the efficient frontier being pushed to the left near the axis?

I took some classes in portfolio theory, and learnt the Markowitz Mean-Variance Analysis. If only two risky assets, the efficient frontier would be a hyperbola passing through the two points; now if ...
2
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0answers
108 views

Portfolio optimization with absolute position constraints

I'm looking to optimize a portfolio maximizing expected return for a particular risk budget, but with absolute constraints on the individual instrument positions. I've been experimenting with QP, ...
0
votes
1answer
201 views

How to compute a sector's volatility within a portfolio?

Assume I have a large portfolio of equities spread across three sectors. I am attempting to compute the volatility of these sectors within the portfolio considering the cross correlations among the ...
3
votes
0answers
343 views

Testing Valuation, Size and Momentum (proprietary factors) from 1988-2013: No evidence of driving cross-sectional returns

I am currently testing whether three proprietary factors - Valuation, Size and Momentum - explain cross-sectional returns. A sample of 3000 securities was tested using Fama-MacBeth two-pass ...
7
votes
3answers
1k views

R: Fast and efficient way of running a multivariate regression across a (really) large panel (First pass of Fama MacBeth)

I am attempting to run a rolling multivariate regression (14 explanatory variables) across a panel of 5000 stocks: For each of the 5000 stocks, I run 284 regressions (by rolling over my sample ...
5
votes
2answers
250 views

Average correlation of index/portfolio

We try to analyze the average correlation of a portfolio as it can be found here in section 2 b), the same formula which is also used by the CBOE to calculate implied correlations: $$ \rho_{av(2)} = ...
0
votes
1answer
105 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 ...
2
votes
1answer
133 views

Determining the portfolio return distribution to calculate CVaR/ES

I'm trying to do a portfolio optimization with an expected shortfall constraint. For this, it is necessary to know the distribution of expected portfolio returns. When doing this empirically, my plan ...
10
votes
1answer
264 views

Is creating constrained random portfolios a hard problem?

Creating random portfolios with weights $x_i$ can be thought of as sampling from the surface of a simplex given by $$Ex = f$$ and $$Ax \le b$$ Where $E$ and $A$ are constraint matrices for equality ...
1
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1answer
282 views

Portfolio software that shows 'total return' for each investment

I'm a high school technology teacher and sponsor for the Charity Student Investment Project. Currently our students track our investment portfolio via a google spreadsheet ...
4
votes
0answers
386 views

Risk Budgets with Target Portfolio Volatility

I'm working through the implementation of a risk budgeting approach as described in the recent Roncalli paper. The idea is that the portfolio manager sets a contribution of total portfolio volatility ...
0
votes
1answer
232 views

How to adjust local currency returns to US$/EUR return?

Iam doing research on return characteristics. As of today the scope of the research has changed from a local investor point of view to an international investor point of view. This basically means ...
3
votes
1answer
157 views

Desired portfolio volume

I am working on a toy model, in part of which an investor has to decide (based on some utility theory) how much money to invest in a given portfolio. For simplicity, assume that the portfolio is ...
2
votes
2answers
559 views

Calculating Geometric mean

I need to annualize daily returns for about 120 firms for over a period of 10 years. I chose to calculate the geometric return because 1) it is the actual return 2) to avoid the asymmetric effect of ...
2
votes
0answers
361 views

How to correctly construct a value- and equally weighted portfolio consisting of property-types?

A problem of which I couldn’t find the answer on the forum is about the construction of equally-weighted and value-weighted portfolio. I want to compute the equally-weighted property-type portfolio ...
2
votes
2answers
178 views

Portfolio risk-return when assets have limited and inconsistent historical data / time series?

Lets say we have "today's" snapshot of asset allocation and need to determine the 6mo, 1 yr and 5 yr risk and returns of this portfolio. If the time series for every asset is very long, longer than ...
1
vote
1answer
117 views

Find a paper about portfolio management

Where to find the following paper of the noble prize Paul Samuelson (2003) “When and Why Mean-Variance Analysis Generically Fails,”. I was looking for it desperately on Google and Google Scholar but ...
6
votes
0answers
181 views

Optimization procedure for entropy pooling

I was wondering if those who used the entropy pooling code provided by Attilio Meucci had issues with the optimization procedure (especially regarding the fminunc function in Matlab). When I stress ...
-4
votes
2answers
179 views

How to use mean-variance weights in practice (when going short is allowed)? [closed]

I have calculated my optimal portfolio weights following the mean-variance framework where I go $w_1$ in the risky asset and $1-w_1$ in the risk free rate. I get the following result: $w_1$ = 1.5, ...
4
votes
1answer
688 views

Robust Bayesian portfolio optimization in matlab?

I am working through this paper. I want to implement the robust Bayesian optimization (see pages 6 onward) in Matlab using fmincon. Here is a brief overview of my problem: Let $\alpha$ be the ...
2
votes
2answers
2k views

What do the terms in-sample and out-of-sample estimates mean in MVO?

How do the in-sample estimates and out-of-sample estimates I so often hear authors refer to in emperical analysis of MVO differ?
4
votes
0answers
222 views

Analyzing the angle between vector of weights and vector of returns in mean-variance optimization

I am using the paper "A Sharper Angle on Optimization" by Golts and Jones (2009) as a basis for my (minor) masters thesis in mathematical finance. The paper focuses on the mean-variance analysis of ...
2
votes
3answers
384 views

Optimizing a currency only portfolio with negative weights

I am testing various optimization methods for a currency-only portfolio. I have a vector of expected returns for the major developed currencies vs. the USD each week (based on a proprietary model). I ...
2
votes
2answers
761 views

Determining portfolio risk return in R given historical data for individual holdings?

Currently we compute portfolio risk and return via our own C# program. Historical data is stored in a SQL database. We want to compute the risk and return parameters - given a portfolio (i.e. not ...
5
votes
0answers
181 views

How to build an electricity portfolio for an electricity production company?

I am referring to an electricity production company. Company is located in AsiaPac. The power is generated using Natural Gas fired combined-cycle power plants. Then this electricity is distributed to ...
10
votes
3answers
216 views

Does entropy pooling apply to distributions with time-varying drift?

I have a returns process that is drawn from a normal distribution with a nonlinear time-varying drift, so I was wondering if the entropy pooling method still applies or if I need an invariant ?
1
vote
1answer
131 views

Expected length and depth of drawdown

Does anyone know of any model to estimate the distribution of drawdown length and depth assuming a certain portfolio dynamics? The arcsine law seems to suggest that a portfolio can spend a large ...
8
votes
2answers
611 views

Why do low standard deviation stocks tend to have superior future returns?

I've recently stumbled on something that really surprised me. These papers (1, 2) find that past standard deviation of returns is inversely related to future returns. That is, portfolio of low ...
2
votes
1answer
454 views

Using alpha to evaluate trading strategy

I have a trading strategy that generates returns $R_{t}$. I want to test the strategy by looking at the alpha: $R_t - R_{f,t} = \alpha + \beta (R_{m,t} - R_{f,t}) + e_t$ I compare my alpha against ...
4
votes
3answers
409 views

Calculating the right portfolio(position size for each leg) in a Long/Short Strategy

For a Long/Short Strategy, I have two stocks with different volatilities. How can I calculate the right position size for each leg? *The pair trading is not coming from co-integration but more as a ...
1
vote
1answer
195 views

Minimum variance hedge with more than one asset

My portfolio comprises of 3 assets A,B,C that are correlated and the variance-covariance structure is known. At any given point in time, my position in Asset A say is given to me. I need to ...
2
votes
2answers
384 views

constructing a minimum variance portfolio

Assume a US-based company has sold something to a Norwegian company. It will receive 1M Norwegian Kroner in two months, and would like to hedge this future cash flow against currency exchange risk. ...
1
vote
1answer
138 views

Resampled efficient frontier length of simulation

I was provided with a VBA program from my lecturer that applies the resampled efficient frontier. We have an investment horizon $T$ (6 years) and he uses a multivariate normal distribution with ...
3
votes
1answer
684 views

Michaud's Resampled Efficient Frontier - Out of Sample Simulation Testing

I will be putting ALL my account points on bounty to whoever answers this question [if your answer is crap but it's the only answer, you're getting the 165 points]. You will have to wait 2 days or so ...
6
votes
2answers
715 views

Comparing MVO with Resampled Efficient Frontier

My question: How can I compare the Resampled Frontier (REF) to the standard MVO frontier when I have been provided with $\mu$, $\Omega$, and don't have access to true future data to test real out of ...
1
vote
1answer
325 views

Does amortization of bond start accumulating on trade date or settlement date?

I am sorry if this is not appropriate here. We are building a wealth management system and I really would like to know whether amortization of bond start accumulating on trade date or settlement date ...
2
votes
1answer
636 views

Modelling VIX Futures for risk management

I would like to model VIX futures. The aim is not pricing but risk management. Thus I want to get risk measures like volatility right and be able to accurately calculate correlations when the VIX ...
1
vote
2answers
614 views

Multi asset option portfolio risk management (greeks and FX exposure)

I am running an options book containing listed options across multiple products. I trade mostly equity and index related options - with a preference for European expiration products. I trade products ...