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2
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2answers
304 views

Basic question on Portfolio Theory

I was revising my stuff about portfolio theory and I noticed that every single time, expected return and corresponding variance or covariance are given! (not calculating ourselves). So I'm just ...
1
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0answers
30 views

How to understand stock return comovement

In his book "Asset Pricing" chapter 20, Cochrane said For example, suppose that average returns were higher for stocks whose ticker symbols start later in the alphabet. (Maybe investors search ...
5
votes
3answers
87 views

Jegadeesh and Titman 1993 Power of their test

I am reading this classic paper(http://www.business.unr.edu/faculty/liuc/files/BADM742/Jegadeesh_Titman_1993.pdf) and got confused by one of their arguments on their overlapping portfolio strategy to ...
4
votes
1answer
56 views

Calculating portfolio weights of derivatives

A rather simple question. You have a portfolio of USD100 in cash. You now take USD10 and buy a derivative that gives you exposure of USD200 to something. What is the weighting of cash in the ...
4
votes
1answer
89 views

Full Kelly portfolios having same weights as tangency portfolios

I'm currently comparing empirically the differences between Markowitz and Kelly portfolios. I calculated the Kelly weights for monthly return observations over 10 years for a sample of 50 stocks from ...
2
votes
0answers
38 views

How to calculate the estimation error of portfolio variance using propagation results?

I am trying to find a conservative approximation for the propagated estimation error of a investment portfolio's variance (comprising two assets), given we know the estimation error for the variance ...
1
vote
1answer
70 views

Rebucketing Risk using PCA/other methods

was working on a project and could use some help. New to the community and looking fwd to being an active part of it. My question is, let's say we have a vector of securities V, and it trades with ...
2
votes
0answers
90 views

Ledoit-Wolf portfolio weights calculation

I am trying to implement the Ledoit-Wolf minimum variance portfolio strategy on a real-world stock dataset. ...
4
votes
1answer
266 views

Rebalancing portfolio weights

I have a matrix of returns and weights for every time period. ...
1
vote
1answer
59 views

optimization with absolute constraints

Suppose I have an optimization where I need to impose ADV-like constraint (for a case where Shorting is allowed): $\max \mu'w - \lambda w'\Sigma w$ $ |w| \le V $ $ Aw = 0$ and I want to use a ...
1
vote
3answers
114 views

What's the disadvantage of using linear programming for portfolio optimization?

I am a MFE student and we have project on the Markowitz portfolio optimization problem. i am wondering how much impact there will be, if I use a simpler linear optimizater instead of a quadratic one....
6
votes
1answer
180 views

Completeness and Hedging Question

A question in some private notes I'm struggling to work through (exam. prep.). (iii) is where I hit a wall with my understanding & I'm lost thereafter. Any help/clarification gratefully received. ...
2
votes
2answers
125 views

Portfolio Return Contribution by Sectors

I have a table containing the following fields: Date, PortfolioReturn, CashReturn, Sector1Return,...,Sector10Returns 'PortfolioReturn' is the sum of CashReturn + return contributed from 10 market ...
1
vote
1answer
79 views

FX Portfolio Volatility Targeting

If I have 3 different currency trades (ex short EURSEK, short NZDUSD, long USDJPY), how do I size each trade if I wish to allocate risk equally in order to target a 12% portfolio volatility (allowing ...
1
vote
0answers
119 views

bandwith portfolio rebalancing in python

I want to calculate a bandwith rebalancing machanism for a portfolio of two assets. As soon as the performance of one ov the assets gets bigger or smaller than the other one + a defined tolerance ...
7
votes
4answers
454 views

Are these steps correct to calculate Value-at-Risk with a Monte Carlo simulation?

I have a problem calculating VaR with the Monte Carlo Simulation. I followed the next steps and would like know if it is a right way to calculate VaR or if I need something more? The steps ...
2
votes
0answers
34 views

Budget Constraint in Duffie's book

On Page 5 of Duffie's Dynamic Asset Pricing Theory, the budget-feasible set is defined as: $$X(q,e) = {e+D^T\theta \in R_+^s:\theta \in R^N, q\theta \leq 0}$$ Compared to Kerry Back's presentation of ...
2
votes
2answers
51 views

Leverage on ETF the same effect as on portfolio?

While we know that leveraged ETFs do decline in value to zero given infinity, can we also say the same with our portfolio value if we use leverage in our trading activity and seeing our portfolio ...
1
vote
1answer
42 views

Portfolio Selection formulation

I was just wondering why in http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1601412 on page 22, the constraint (48) is a strict equality for the minimum variance formulation. Whereas in a different ...
4
votes
2answers
92 views

When would dedicated portfolios do better than 'immunized' portfolios?

We just learned about cash-matching through dedicated portfolios (using risk free bonds) in my class that concerned mathematical programming. However, in an aside one of the notes said: It should be ...
2
votes
1answer
69 views

How to deal with missing returns when creating value (equal) weighted returns

recently I am doing cross sectional regressions, and getting confused about missing returns. Suppose we have 100 stocks, then we want to construct a value weighted return (or equal weighted return). ...
1
vote
1answer
310 views

Calculate CVaR for a portfolio

I would like to calculate the Conditional Value at Risk for a portfolio. To be honest, I'm trying for a few days to find an example to calculate for an entire portfolio, not just for one security and ...
0
votes
1answer
41 views

Replication of the portfolio in single step binomial model

I would be grateful if anyone would comment how to construct this: Assume $S_{i}^k$ is a stock price at time level $i$ and at price level $k$. Assume option is written on $S$ with a a payoff $f_{T}^{...
2
votes
1answer
194 views

out-of-sample variance using rolling window

I am currently working on the comparison of the constructed portfolios using out-of-sample variance criteria. I am going to use rolling window procedure for the comparison. First, I choose a window ...
0
votes
1answer
45 views

Portfolio of Assets

The following represents a model for an economy. At time $t=0$, four assets have the value $X_1= £5$, $X_2=£5$, $X_3=£10$ and $X_4=£4$. Three possible states of the world exist ($\alpha_1$, $\...
0
votes
1answer
542 views

Portfolio optimzation : efficient frontier with respect to risk aversion parameter with R

I am currently trying to write a little script in R to determine the optimal weights given a fixed risk aversion parameter. The problem I have is that by increasing the risk aversion parameter I think ...
2
votes
1answer
136 views

How do I show that there is no tangency portfolio?

Question: Suppose that the risk-free return is equal to the expected return of the global minimum variance portfolio. Show that there is no tangency portfolio. A hint for the question states: Show ...
0
votes
2answers
105 views

Right metric to manage a portfolio based on correlation?

I want to algorithmically add a new investment to an existing portfolio. The decision should be based on a low correlation to the existing assets. E. g. the following situation The portfolio ...
1
vote
0answers
51 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 ...
1
vote
0answers
185 views

Tangent portfolio weights without short sales?

Consider a mean-variance investor in a world with a risk-free asset. Let $R_f>0$ be the return of the risk-free asset, $\mathbb{E}(R_i)>R_f$ the expected return of the risky asset $i$ and $SD(...
1
vote
1answer
101 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
vote
1answer
54 views

Desperate for help with simple derivative

Can someone help explain how differentiating the following with respect to $x$: $$ \frac{1}{2} \alpha \mathbf{x}^T \Sigma \mathbf{x} + (\mathbf{\mu} - R\mathbf{1})\mathbf{x} $$ Yields the following: ...
2
votes
0answers
40 views

Portfolio optimised for diversification and regular yield. How to hedge?

Here is a portfolio optimisation for equity dividend and yield designed to diversify holdings and produce regular monthly returns using only ETFs complete with R code. http://prescientmuse.blogspot....
0
votes
2answers
168 views

Comparing Portfolio Volatility with Index Volatility seems a wrong method?

thanks for looking into this question. I am comparing an investment strategy against the S&P 500 for a financial article I'm writing. I compute volatility of the Portfolio in this way, as the ...
0
votes
1answer
99 views

I have volatility of a portfolio in year 1 and in year 2. How do I calculate the volatility over the total 2-year period?

thanks for looking into this question. See the picture below (better is right-mousebutton - open in new tab). I also have the price and return data of the Stocks if that's needed to calculate the ...
2
votes
2answers
80 views

I have portfolio volatility for year 1 and for year 2. What is portfolio volatility for year 1 and 2 combined?

Thanks for looking into this question. Portfolio volatility in year 1 = 15%. Portfolio volatility in year 2 = 20%. What is the portfolio volatility over the timespan year 1 and 2 combined? Is it ...
0
votes
2answers
110 views

I have portfolio volatility for individual years, can I use them to compute portfolio volatiltiy for subperiods?

Thanks for opening this question. I have constructed some rules for a portfolio with annual rebalancing and am backtesting it for the period 1990-2014. I want to compare the risk-adjusted return to ...
2
votes
1answer
104 views

Geometric Return & Performance Results for Quarterly Rebalancing

I have a Portfolio that is rebalanced every 3-months. The portfolio is made up of assets that have daily log-returns. I am a bit confused when charting the results using ...
5
votes
2answers
190 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 ...
2
votes
0answers
62 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 ...
1
vote
1answer
46 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 ...
-1
votes
1answer
119 views

In a FX options book, is the sum of P&L equal to the portfolio value?

For a portfolio containing FX options, would the sum of P&L for each option be the portfolio value?
1
vote
1answer
125 views

Combine together different strategies in one portfolio [closed]

Hi I have generate equity of my strategies which invest in commodities and currencies at daily interval. What the best method to combine together all strategies in one portfolio? I want to make the ...
1
vote
2answers
55 views

Distribution of the value of a portfolio

Suppose there are k different stocks in a stock market. All of their prices are independent from each other. One year from now the price of the i-th stock will be $X_i^2$, where $X_i \sim \mathcal{N}(...
2
votes
2answers
200 views

Set up sharpe ratio with 2 risky portfolio

You are considering an investment in the stock. In the stock market, there are two risky stocks (A and B) and a risk free claim, C (you can think of it as the t-bill). The covariances and returns of ...
0
votes
1answer
51 views

Currency Portfolio G10 vs USD allocation

Given that I have fundamental data such as GDP growth rate for G10 countries .Now I want to build a currency pairs portfolio of G10 currencies vs USD .How can I translate country scores to currency ...
2
votes
1answer
246 views

Predicting stock returns - in a panel data specification or by using portfolio formation strategies?

I'm working on an empirical analysis where I try to predict stock returns using weekly data. Ideally, I would like to use a panel data model like the following: $$ Y_{it}=X_{it}'\beta+\varepsilon_{it}...
7
votes
2answers
2k views

How do Return.portfolio and Return.rebalancing work in Performance Analytics in R?

I have a question about the function Return.portfolio/Return.rebalancing from the Performance Analytics package in R. I take ...
1
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0answers
61 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
vote
1answer
61 views

What do “Exposure Bounds” mean in Portfolio Optimization?

I've just started reading up on Portfolio Optimization models and have come across the use of exposure bounds to mitigate the sensitivity of the optimized model solution, owing to parameter estimation ...