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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3
votes
1answer
174 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
731 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
421 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
190 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
120 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
203 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
188 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, ...
5
votes
1answer
769 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 ...
3
votes
2answers
4k 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
241 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
441 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
998 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
1answer
210 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
219 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
141 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
637 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
515 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
465 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
211 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
404 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
148 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 ...
4
votes
1answer
827 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
849 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
382 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
775 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
758 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 ...
12
votes
5answers
3k views

portfolio optimisation with VaR (or CVaR) constraints

I would like to optimize a portfolio allocation (maximizing the exposure or the expected return), but with VaR or CVaR contraints. (some parts of my portfolio cannot exceed a certain VaR) How can I ...
0
votes
0answers
149 views

Looking for FpML best practices

We want start using FpML within our organisation; where message will be sent using FpML. What are best practices to do this ? If anyone who have used Tools as well as; i want to use FpML for ...
4
votes
1answer
714 views

Risk-Parity Portfolio Optimization using Extreme Optimization in C#

I'm trying to create a risk-parity portfolio in C# using the Extreme Optimization routines. I'm mostly trying them out to see if I like them or not before I buy them (I'm a student so money is ...
-3
votes
1answer
141 views

Methods for distributing cash into allocation

Are there any methods/techniques that cover distributing cash into a specific percent of a portfolio asset class while gaining the best average price? As a simple example, a portfolio starts with ...
1
vote
1answer
1k views

Calculating portfolio allocation beta with different asset classes?

I'd like to calculate portfolio allocation beta on a portfolio that has different asset classes. The portfolio may be made up of: ...
6
votes
1answer
1k views

How can I use Entropy-pooling of Atillio Meucci to constuct a portfolio?

I am trying to get my hands on Entropy Pooling which was introduced by Meucci in this paper. As an example, assume I want to construct a portfolio with five stocks and I have my view on CVaR. How ...
2
votes
0answers
115 views

How to Quantify Headwinds

What are some of the best ways to effectively measure headwinds for an open ended fund? Headwinds in this case refers to the amount of volatility contributed by a factor or a set of factors to a ...
-3
votes
1answer
442 views

Trading Strategies and Portfolio Constructions based on Cross Sectional Regression? [closed]

I often see trading strategies and portfolio construction that are based on cross-sectional regression. For example, I often see regressing some numbers against some factors. I was wondering how ...
6
votes
3answers
684 views

cointegration applied to Portfolio Construction & Risk management

There are all sorts of applications of cointegration to generating alpha on mean-reverting timeseries: comparing spot vs. futures, bond spreads, identifying mean-reverting residuals, etc. But there ...
3
votes
0answers
298 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 ...
5
votes
1answer
409 views

Are there any tools or useful algos for identifying corner portfolios?

Let's say I am performing mean-variance optimization subject to some weight constraints. I'd like to identify the set of corner portfolios so that I can interpolate the entire efficient frontier. A ...
2
votes
3answers
588 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 ...
9
votes
2answers
630 views

How to compute performance attribution between daily rebalanced strategies?

I have a daily rebalanced portfolio of several strategies. After one month, I now want to attribute the performance to the different strategies. There are several ways to do it. For instance one ...
25
votes
11answers
10k views

Why does the minimum variance portfolio provide good returns?

I've been a researching minimum variance portfolios (from this link) and find that by building MVPs adding constraints on portfolio weights and a few other tweaks to the methods outlined I get ...
6
votes
1answer
662 views

How to run an asset replication regression?

I am doing extensive research on portfolio replication and was hoping to get some help with some problems I am encountering. I am running a regression between 2 assets that I believe replicate ...
10
votes
3answers
2k views

Why do expected return models and risk models use different factors?

This is a question responding to weekly topic challenge. I happen to see an interesting question from SYMMYS by Michael Kapler. I always approached expected return and risk modeling as separate ...
3
votes
3answers
803 views

What are the limits of bond portfolio immunization against interest rate changes?

I'm currently reading through an article on bond portfolio immunization against changes in the interest rate. I learned that the immunization can be done against instant changes in interest rate ...
3
votes
3answers
358 views

What is the case for active management?

A recent personal finance question asks when to hire an investment professional? Given that many of us here are on the professional manager side of the business, how would you make the case? What ...
10
votes
4answers
1k views

What books should any quantitative portfolio manager or risk manager have as reference? [closed]

I'm interested to know what are the critical reference texts you rely on for portfolio or risk management? I mean those texts that you come back to because they are chock full of insight and know-how. ...
6
votes
1answer
381 views

How can I simulate portfolio risk (diversification) with a 'Wheel of Fortune' like investment options/returns?

Say I have 6 possible investment options with the following probability of success and the corresponding returns: ...
2
votes
2answers
2k views

Calculating Portfolio Skewness & Kurtosis

I need to calculate the skewness and kurtosis of 2 asset portfolio, can someone please help me with the formulas and definition of terms? Thank you. I have been using the matrices method and I am not ...
6
votes
2answers
810 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 ...
6
votes
3answers
812 views

What position-sizing methods are used in futures trading?

Beyond optimal / partial f and a few other older methods, there's very little information out there for futures trading.
7
votes
2answers
420 views

How to shift amongst asset classes in response to relative value views?

I am designing an asset allocation strategy/fund which invests in four asset classes (via four independent sub-funds): Domestic equity International equity Domestic fixed income Foreign currencies ...