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, ...

learn more… | top users | synonyms

2
votes
3answers
155 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 ...
3
votes
1answer
95 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 ...
-2
votes
1answer
47 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 ...
3
votes
3answers
99 views

Capital Allocation for Portfolio of Multi-Strategy and Multi-Instrument

I would like to know if there is a way (or theory) to manage a multi-strategy, multi-instruments portfolio that would calculate the optimal weight to allocate capital for each combination of strategy ...
1
vote
1answer
30 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 ...
0
votes
1answer
92 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
0answers
36 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 ...
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 ...
1
vote
1answer
64 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 ...
1
vote
2answers
163 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 ...
0
votes
0answers
34 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
vote
0answers
35 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
votes
0answers
64 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
votes
0answers
26 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 ...
4
votes
1answer
125 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 ...
1
vote
1answer
94 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
vote
3answers
173 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?.
0
votes
1answer
101 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
2k 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 ...
1
vote
1answer
89 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 ...
6
votes
3answers
686 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 ...
-1
votes
1answer
59 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 ...
8
votes
4answers
474 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 ...
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 ...
2
votes
1answer
90 views

Partition assets into minimally correlated portfolios

My question covers a more or less classical portfolio optimization situation with a twist: How to partition assets into minimally correlated portfolios, with and without asset overlap. I have $N$ ...
0
votes
1answer
63 views

Making portfolios better than others for a 16 week portfolio game? [closed]

I'm going to participate in a game of making portfolios. The objective of the game is to make the portfolio with the bigger ROI over 16 weeks. Over each week every player can see the ROI of each ...
3
votes
1answer
83 views

Create optimal portfolio by Treynor and Jensens Alpha

I would like to know which formula to use in order to optimize a portfolio based on highest Treynor and Jensens Alpha. I am aware that usually one optimize a portfolio by highest Sharpe ratio (the ...
2
votes
2answers
355 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 ...
1
vote
3answers
193 views

Calculate correlation between two sub portfolios and the combined portfolio

I have two sub portfolios (lets call them portfolio a & portfolio b - a portfolio is just a vector of weights that sum to 1) that combine to create a total portfolio. I also have a 2 x 2 ...
0
votes
0answers
26 views

Price of portfolio with target volatility

Consider the following: We have two assets, S1 and S2, and with each asset is associated a volatility, v1 and v2, respectively. Now let's say v1 < v2, and we want to create a portfolio of S2 and ...
1
vote
1answer
29 views

How to reason about leverage in terms of elasticity

Return of an investment for a given period is by definition: $$r = \frac{P}{W_0} - 1$$ where $P$ is the price of the investment at the end of the period, and $W_0$ is the initial investment. I want ...
2
votes
1answer
72 views

What are the assumptions of portfolio optimisation with higher moments?

I was wondering whether there are a set of assumptions for portfolio optimisation with higher moments (including kurtosis and skewness) as there are for regular mean-variance optimisation?
3
votes
3answers
114 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
154 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 ...
5
votes
0answers
202 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 ...
1
vote
0answers
36 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 ...
9
votes
1answer
304 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 ...
9
votes
3answers
2k views

How do I calculate the skewness of a portfolio of assets?

I need to calculate the skewness of a portfolio consisting of 6 assets. I know that for that I would need the co-skewness matrix between the assets. Does anybody know the formula for co-skewness or ...
0
votes
1answer
163 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 ...
2
votes
1answer
58 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
91 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
votes
0answers
206 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 ...
16
votes
2answers
776 views

Diversification, Rebalancing and Different Means

I have found many financial authors making generalizations about GM and AM but they are wrong in certain circumstances. Could someone explain their reasoning? My fact why they are wrong is based ...
0
votes
0answers
51 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
100 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
148 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
282 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 ...
4
votes
2answers
334 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)} = ...
1
vote
1answer
338 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 ...
2
votes
0answers
126 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, ...