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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41 views

Risk minimization by investing in all assets with positive expected return

Suppose I have an amount $T$ to invest and $N$ available assets. The stochastic return per invested unit of asset $i$ is $R_i$. The variance and the expectation of $R_i$ are $\sigma^2_i$ and ...
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1answer
29 views

portfolio optimization with uncertain returns

What is the usual method of dealing with many uncertain mean returns in portfolio optimization? For example say you have a 3 asset portfolio with assets A, B and C. All the correlations and variances ...
3
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3answers
78 views

What to use as portfolio diversification measure?

Suppose that we have a portfolio of $n$ assets. A perfectly diversified portfolio is one in which each asset has equal weights, i.e. each asset has weight $\frac{1}{n}$. Of course this is usually not ...
3
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2answers
138 views

correlation for portfolio of stocks

I have a portfolio of stocks and all I want to do is to make sure that I'm not trading one big position, so I would like to monitor some type of metric that gives me a rough idea of what the overall ...
0
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1answer
59 views

Computing the minimum variance portfolio

Given two risky assets and their corresponding covariance matrix, how do I compute the global minimum variance portfolio, its standard deviation and its expected return?
3
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1answer
61 views

Regime Switching for Dynamic Correlations

I would like to implement a Regime Switching for Dynamic Correlations in an out-of-sample analysis using MATLAB. After looking at the literature on the subject, they all refer to an article by Denis ...
4
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1answer
77 views

Can I add the greeks of individual postions to obtain greeks for the portfolio

I understand that the delta of an option portfolio is just the sum of the deltas of the individual option positions. What about the other Greeks like gamma and vega? Do the vega and gamma of a ...
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0answers
35 views

On a source for a mean-variance portfolio optimization result

In the context of a mean_variance framework consider an optimizing investor who chooses at time $T$ portfolio weights $w$ so as to maximize the quadratic objective function: $$U(w) = E[R_p] - ...
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1answer
33 views

Why model the variance-covariance matrix as an inverse-Wishart distribution in bayesian portfolio analysis?

I am following Risk and asset allocation (Attilio Meucci,2007). I must say I am enjoying this reading quite a lot so I hope nobody takes my question as a critique on the text. When we are introduced ...
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1answer
58 views

On learning the bayesian approach to portfolio optimization

I am required by my course to write a small paper on the Bayesian approach to portfolio optimization, I am following Applied statistical decision theory [by] Raiffa, Howard. Which can be consulted ...
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0answers
24 views

Multi-objective optimization: Where to find qualified examples for portfolio management?

I am looking for qualified examples of multi-objective optimization applied to a portfolio management situation in non-normal markets. Where can I find one or more examples of such a multi-objective ...
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0answers
37 views

Portfolio Performance Metrics

In comparing different long portfolios in stocks for 15 quarters, where at each quarter I re-balance the portfolio. So what I have done is made a function that outputs the rand value of the portfolio ...
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0answers
95 views

Black-Litterman with simple portfolio

In an attempt to learn Black-Litterman I have come across this "simple" example. Suppose that you analyze market data using CAPM $$r_i-r_f=\beta_i(r_m-r_f)+\epsilon_i$$ Suppose there are 2 assets in ...
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1answer
55 views

Equall Risk Contribution and The Most Diversified Portfolio [closed]

I am a master degree student on applied economics at Brazil and my thesis will be about smart beta strategies. I pretend to apply Equal Weigth, Mininum Variance, Most Diversified Portfolio and Equal ...
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2answers
135 views

Investment: Bond vs Equity

I was talking to a friend recently and he asked me the following question. If I have a device which perfectly (with 100% accuracy) predicts that both a bond (e.g. AAA rated government bond) and the ...
3
votes
1answer
101 views

Black-Litterman example

I'm trying to learn Black-Litterman. I feel like I get the overall idea from books like Risk and Asset Allocation by Meucci as well as some of the early papers which develop the model. What I would ...
3
votes
1answer
138 views

Bayesian or Frequentist in Finance?

I'm currently an undergrad at a Canadian university and our finance courses has been brought up through the frequentist approach (ols, hypothesis testing, sampling theory). Only recently, through ...
4
votes
1answer
108 views

Historical Financial Statement to Backtest in R

I would like to preface this by saying I am preparing for an upcoming internship this summer so I am extremely new to Quant Finance. At my university we have access to Datastream by Thomson Reuters ...
4
votes
2answers
133 views

Portfolio Optimization to include ALL Securities?

I'm currently optimizing portfolio weights for an investment team with N stocks. We buy stocks with a conviction it will generate a return and it is up to me to determine weighting. However, with ...
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0answers
55 views

Risk measures, Risk Management and Financial Risk Area

I'm currently searching material about market risk and I learned about coherent risk measures, VaR, CVaR (or expected shortfall), volatility. All that because I have to make a Financial Risk Area for ...
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0answers
23 views

Sharpe Ratio for loans

I am trying to calculate the sharpe ratio for a set of loans. These loans have already matured and I know if they were good or not: grades are the different grades of the loans. interest rate is the ...
2
votes
1answer
60 views

Is an arbitrary prior for Black-Litterman valid? Or do we need a market implied one?

I went through The Black-Litterman Approach: Original Model and Extensions - see also. The BL approeach starts with a prior on the expected returns vector derived from the hypothesis that the market ...
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0answers
55 views

What is the most elegant way to write a trading (or asset selection) algorithm in MATLAB, based on a simple criterion?

Assume a $T \times N$ matrix $X$ of values for an asset characteristic at time $t \in \{1,2,\dots,T \}$, where $T$ is the observation period in months and $N$ is the number of assets and a ...
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1answer
40 views

In theory historical performance of a portfolio

I am looking at the quantitative model our team is using for analyzing the performance of a portfolio of stocks. However I don't understand what the model is trying to achieve. The model is supposed ...
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0answers
50 views

Model-independent dynamic portfolio optimization techniques

For a problem where we need to optimize the portfolio based on the data, going for Markowitz MPT has the following advantage: we only have to estimate mean and covariance to find optimal weights. I'd ...
2
votes
1answer
63 views

An Alphabet Effect?

While I prepared some quick and lazy charts picking just the first 10 symbols out of the SP500 for this other question I observed, that the first 10 symbols (figure 1) actually outperformed the larger ...
2
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4answers
197 views

Portfolio Optimization using S&P Universes

Assuming a set portfolio optimization problem, if all optimization inputs are kept constant, what would you expect, in terms of results, if you run the same optimization using the S&P500 as ...
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2answers
55 views

Weighting with restrictions, but no clear objective function?

I have 40 shares in an index and I want to weight them based on their market value, define the known value as $x_i$ In the traditional way, the weight of each share is calculated as: $w_i = x_i / ...
2
votes
3answers
118 views

Calculate bond returns from yields

I have to construct and evaluate portfolio of bonds and stocks, namely I need to get return on portfolio, standard deviation and sharpe ratios. I have weekly data that contains stock prices, and I ...
5
votes
4answers
466 views

Is there anyone still using Markowitz modern portfolio theory?

I was reading about the MPT (Use standard deviation as risk measure) on "Mathematics for Finance by Marek Capinski". I was just wondering is there anyone actually applying this theory to their ...
2
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0answers
53 views

seasonality and generalized additive model

I am reading a report which talks about seasonality. There is a chart showing the average returns for each month of the year. In the chart it appears the last 3 months of the year tend to be negative. ...
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votes
1answer
54 views

Two assets with the same mean and standard deviation - Would there be any benefit? [closed]

If I have two assets in a portfolio with the same standard deviation and mean and the correlation between the assets is 0, theoretically could there be a situation where it would be beneficial to ...
1
vote
1answer
36 views

MPT and the connection to asset prices / initial capital

I have some question about MPT. Suppose we want to build a portfolio given $N$ assets: $A_1,\dots,A_N$. At time $t$ we build the portfolio using MPT, which yields some weight vector ...
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0answers
44 views

how to find CVaR/AVaR for triangular fuzzy no

While going through different methods of risk measure i came across AVaR/CVaR, while i was calculating AVaR/CVaR in credibilistic environment using VaR, i got stuck in the calculations eg. For ...
1
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1answer
165 views

Estimate correlation of time series whose histories differ in length

Very often in quantitative analysis (e.g. calculating portfolio volatility) we have to analyze various time series - mostly returns - whose lenghts differ. Risk systems usually apply a one-factor ...
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0answers
57 views

multi factor equity model exposures not as expected

I'm researching an equity multi factor model. It contains three factors, say A, B & C. The factors are weighted as such, ...
1
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2answers
178 views

M&A hedging an equity portfolio against an index

Quick Note This question was already posted under the userID user8170. Reason being I could not access my account. Now I am able to login to my account I am reposting the question here and will ...
3
votes
1answer
132 views

factor models and using cross section regression

I have been doing some reading on factor models. In the literature it mentions that when creating a portfolio that maximises particular attributes it may lead to unwanted bias to other factors. I ...
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0answers
39 views

How to value a portfolio of non-mature consumer loans?

I'm looking for the best way to value a portfolio of consumer loans that have NOT reached maturity and for which I do observe the payment/default history to date? I'm working with a large database of ...
0
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0answers
78 views

hedging an equity portfolio against an index

I am trying to run a simple back test on a M&A strategy. The idea is to buy the target company for the length of the deal and obviously hope to see a profit. The weight given to each deal is ...
0
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0answers
33 views

How to compute return of a variance swap?

How does one calculate the investment of a zero initial investment asset, specifically a variance swap? In this asset the payoff is given by the difference between the realized variance in a certain ...
1
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1answer
122 views

Selling an American call option early

I understand it is never optimal to exercise an American call option early. [1] [2] However, here are my two contradictory thoughts about selling an American call option early. Assumptions I can ...
1
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3answers
335 views

Handling Missing values in stocks returns when estimating the co variance matrix

What is the best way to handle missing values when stocks did not exist for the entire historical period?.
4
votes
1answer
185 views

Option based portfolio insurance in practice

My question is about option based portfolio insurance in practice. Some insurance companies offer products where there is a mutual fund (equity and bonds) and a guarantee attached. This guarantee is ...
0
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1answer
141 views

How to projectP&L or drawdowns on pair trading , trading and portfolios?

This is for planning and risk management. I am stuck on the following thoughts - Back-test the trading strategy for a period similar to the one you expect and then project. Do the above using ...
1
vote
1answer
126 views

Plot Evolution of portfolio weights over time in R [closed]

Is there any function for plotting the evolution of portfolio weights over time in r?. I have a matrix of portfolio weights from an equal weighting strategy at rebalancing times and want to plot ...
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1answer
69 views

how to calculate avarage variance and avarage covariance

I would like to figure out how to calculate av.variance and av.cov. I know how to calculate portfolio variance( for large ...
5
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3answers
262 views

Platform for Quantitative equity portfolio

What are the most popular platforms used for quantitative equity portfolio management/research? I've only used Barra so far for their factor models. Is there any specific feature or model you think ...
0
votes
1answer
110 views

investors hold efficient portfolios because generally they are risk averse

I'm trying to find a concept on this question,in my understanding investors differ on risk preference,the question said investors hold efficient portfolios because they are generally risk averse? ...
8
votes
4answers
614 views

Why shrink the covariance matrix?

I'm trying to understand why it's useful to shrink the covariance matrix for portfolio construction or in fact general. Think I missing something. I know if you have 5,000 stocks it's a lot of ...