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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39 views

Hwo to create a benchmark for a portfolio?

How does one create a benchmark for a portfolio? I realize if I were using strategic asset allocation, I could just look at the already existing benchmarks associated with the various asset classes ...
2
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0answers
45 views

OHLC Covarianc Estimation

Is there an R package which can estimate a covariance matrix using OHLC (Open/High/Low/Close) share prices for upwards of 40 shares using the Yang & Zhang method using daily data? I google ...
2
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1answer
60 views

How to calculate a hypothetical minimum-variance point?

If we have $N$ assets which are uncorrelated, but have the same mean return of $\mu$ but the variances are different where $\sigma_i^2$ is the variance of each asset $i = 1, 2,...,N$ how can you write ...
2
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1answer
63 views

How to optimize a portfolio using skewness?

I am trying to do portfolio optimization for 5 stocks taking into account skewness of the portfolio but I am unable to incorporate skewness to the mean variance model. Can anyone please help on how ...
4
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3answers
91 views

Abritrage when Put Option Greater then Strike Price?

I am having a tough time conceptualizing this question here: Let $P$= Price of European Option, $S$ = Present Price of Option and $K$ = Strike Price. If $P > K$, why does abritrage exist? Assuming ...
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29 views

Can anyone suggest book about fixed-income portfolio management? [closed]

Can anyone suggest books about fixed-income portfolio management? Thx
2
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2answers
91 views

Mean Variance Portfolio theory and real-world problem?

There are many assumptions on mean-variance portfolio theory and they seem to be very unrealistic, for example 1) investors have the same information at the same time: calculating expected returns ...
2
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0answers
45 views

Given (past) stock values for N assets, how to find the maximum - theoretical - profit?

In the past few days I have been thinking about a question which seems trivial, yet I can't think of any efficient way to find the optimal solution... Here is the problem: imagine you have a ...
6
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2answers
919 views

Which algorithms do robo-advisors use?

Some pundits claim that there is a revolution in portfolio management under way: The rise of the robots, a.k.a. robo-advisors. The most well known are Betterment.com, FutureAdvisor, Schwab Intelligent ...
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2answers
91 views

Computing $\gamma$ and $\mu$ at the efficient frontier

Consider the condition which the weights of any portfolio belonging to the efficient frontier satisfy: \begin{equation} \gamma\boldsymbol{wC} = \boldsymbol{m} - \mu\boldsymbol{u}\end{equation} ...
4
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1answer
114 views

Tests for Mean Reversion in a Portfolio Rebalancing

On a single time series one can run a Dickey-Fuller test to determine if the asset is mean reverting or at least has been mean reverting during your sample. Is there a way to test for mean-reversion ...
3
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0answers
78 views

Portfolio insurance strategy with path dependence

I have the following problem. Let us assume that $S_t$, the stock price follows, geometric Brownian moation with parameters $(\mu,\sigma^2)$. We are given an amount of money $M$ and at each point in ...
4
votes
1answer
59 views

Sum of two GARCH(1,1) Models

I have two GARCH(1,1) processes ($q=1,2$) $$ \sigma_{q,t} = \gamma_q + \alpha_q \, \sigma^2_{q,t-1} + \beta_q \, \epsilon^2_{q,t-1} $$ that have a constant correlation $\sigma_{12,t} = \rho \, ...
3
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1answer
109 views

A question on immunization and Macaulay duration

I am studying for the Society of Actuaries - Exam FM and encountered the following problem: Let $x$ be the face amount of the 5-year bond and let $y$ be the face amount of the 10-year bond. Since ...
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1answer
265 views

How to calculate annualised tracking error?

I have 36 months of relative returns and I need to calculate the annualised tracking error. So, using 36 months of returns is it simply like below: ...
0
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1answer
57 views

Isolating single assets standard deviation in a portfolio accounting for correlation

I am running a simple Monte Carlo analysis in Excel using mean return, standard deviation and the =NORMINV(RAND(),mean,std dev) method. I have a correlation matrix that I use to compute the portfolio ...
5
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1answer
107 views

How to calculate Skulls Financial Turbulence for one asset?

I have just read this paper http://www.cfapubs.org/loi/doi/abs/10.2469/faj.v66.n5.3 In the paper they define financial turbulence formula as: Could anyone help me calculate/understand this ...
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1answer
67 views

Investor choice problem

Guys I'm stuck with a problem... Consider the portfolio choice problem of a risk-averse individual with a strictly increasing utility function. There is a single risky asset, and a risk free asset. ...
4
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3answers
171 views

market neutral weights and cash values

I am looking at a market neutral portfolio and have a question which I think is probably pretty simple. So I can see the individual stock weights. ...
3
votes
1answer
72 views

Return.portfolio error from PerformanceAnalytics package

When using the PerformanceAnalytics package of R, I am getting an error from the Return.portfolio function whenever I ask it to rebalance_on any frequency. If the rebalance parameter is removed, the ...
3
votes
1answer
97 views

How to evaluate minimum-variance strategies against perfect information mvp

The minimum variance portfolio should minimize the standard deviation (variance) of the portfolio at time $t+1$. The covariance matrix $\Sigma_{t+1}$ needs to be estimated in order to form the mvp. ...
6
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1answer
383 views

Calculate turnover for portfolio

I am trying to calculate the turnover for a portfolio strategy. First I generate some random data and assign it dates: ...
2
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0answers
81 views

Ledoit-Wolf portfolio weights calculation

I am trying to implement the Ledoit-Wolf minimum variance portfolio strategy on a real-world stock dataset. ...
6
votes
1answer
141 views

How to perform risk budgeting for non-linear portfolios?

I am using this question to compute optimal weights following a risk budgeting approach. The problem is I am using non-linear portfolios (options,equity,fixed income,fx). What I am looking for is ...
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1answer
51 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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2answers
73 views

Correlation Between 2 Portfolios

I have a set of assets, n. I'm trying to find the correlation between 2 portfolios, say x and y, where x is nested in, or, a sub-set of y. That is, x is a portfolio based on a sub-set of n, while y is ...
2
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1answer
123 views

How to scale $\alpha$, trading costs in a standard portfolio optimization problem

In the usual "portfolio optimization problem under linear constraints". Let me define the terms here. $$ \text{Find } w^*=\underset{w}{\text{argmax}} \ \ r^Tw - \lambda w^{T} \Sigma w - ...
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0answers
40 views

Performance analysis for a changing portfolio

I am trying to do a performance analysis of an investment in five different funds (A to E). I am investing a fixed amount at each fund (say 10m in A, 20m in B, 10m in C, 20m in D, 10m in E) but the ...
4
votes
1answer
100 views

volatility factor

I am trying to add a volatility factor to Fama-French factor model. Does anybody know of a source where I can get data for "volatility mimicking factor" or suggest a simple methodology for ...
3
votes
0answers
30 views

conferences for credit portfolio managers

What are worth conferences for credit portfolio managers? I appreciate your recommendations! PS:I am aware that this question is not the typical quant.SE question, BUT I couldn`t find reliable ...
8
votes
1answer
137 views

Are there references about liquidation, transaction, market impact costs in portfolio optimization

I am looking for some references treating of what I would call liquidation cost market impact cost transaction cost(*) in the usual "portfolio optimization problem under linear constraints". Let ...
2
votes
2answers
113 views

When to adjust portfolio weights?

In portfolio allocation literature there is lot of effort made in obtaining 'better' portfolio weights, for example via improving parameter estimates, introducing Bayesian approaches, incorporating ...
1
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0answers
34 views

Disaggregating stock performance and dividend yield

I modeled the performance of several portfolios with adjusted close data and would now like to understand how much of it is driven by changes in stock price and dividend payouts. I have all the data ...
1
vote
1answer
292 views

“Hedging” a put option, question on exercise

I have a question on the following exercise from S. Shreve: Stochastic Calculus for Finance, I: Exercise 4.2. In Example 4.2.1, we computed the time-zero value of the American put with strike ...
1
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1answer
55 views

Calculating Fees (Kane, Marcus, and Trippi)

Having read a chapter in Bodie, Kane and Marcus' Investment, I came across a formula I do not quite understand. It states that the percentage fee in excess of what an index fund would charge on active ...
3
votes
2answers
79 views

Higher expected value and same variance implies weak dominance?

In his book Risk and Asset Allocation, Meucci writes (last paragraph) Indeed, since all the indices of satisfaction $\mathcal{S}$ discussed in Chapter 5 are consistent with weak stochastic ...
1
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2answers
108 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 ...
6
votes
0answers
154 views

Computing Value at Risk for portfolio in R

I know how to compute VaR with long positions using PerformanceAnalytics. What about a portfolio consisting in two equities A and B, 100 USD long positions in each, and 2 stock options for the same ...
2
votes
1answer
87 views

Systematic Views in Black-Litterman?

Are there any literature on selecting systematic views for Black-Litterman along with methods to specify the uncertainty parameter? For example, rather than specifying a portfolio manager's subective ...
3
votes
0answers
44 views

Clarification of Saturation-Reset Regimes

I have worked my way through this article, waiting to get into school I have been self-learning a bit. I have a good grasp on most of the article, but the component strategy of Saturation and Reset ...
0
votes
1answer
92 views

What are good online resources for credit portfolio managers?

I am aware that this question is not the typical quant.SE question, BUT I couldn`t find any site/forum/wiki, where credit portfolio managers hang out to share their experience and their methods. ...
0
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0answers
55 views

Active or Passive strategy?

From my reading, passive portfoliomanagement means to replicate an index, active portfoliomanagement means to deviate from an index. Does that mean that e.g. rules-based investing is actually an ...
1
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0answers
50 views

Investing in all assets with positive expected return and allowing for positive correlation

How does the answer to this question Risk minimization by investing in all assets with positive expected return change if assets can be positively correlated (but not perfectly) and short sales are ...
2
votes
3answers
337 views

What are pros and cons of mean absolute deviation portfolio optimization?

In this question a paper about mean absolute deviation portfolio optimization is mentioned and in the answer a spreadsheet with an implementation is attached. What is the use of this procedure? Does ...
1
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1answer
400 views
3
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1answer
133 views

What are recent important papers on credit portfolio risk modeling?

I'm interested in papers which consider mathematical models of risks of different portfolios of retail credit. This is not my area of research, so I may be misusing some terms. The idea is simple: I ...
2
votes
1answer
101 views

The role of Gamma in replicating a put

I am analyzing portfolio protection by replication of a put. Having my portfolio with value $V$ I could buy put giving me the payoff $P$ resulting in a call like pay-off scenario $C=V+P$. Say, I ...
1
vote
1answer
99 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 ...
1
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1answer
55 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 ...
4
votes
4answers
753 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 ...