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Jan
7
comment Are there any tools or useful algos for identifying corner portfolios?
I think there are two different questions to be considered here: "How to calculate corner portfolios?" and "How to generate the efficent frontier?" The second question can be answered by the mutual fund separation theorem - at least if the asset weights should sum to one (or total wealth). If you impose weight constraints, I don't know. I think the other comments refer to the mutual fund separation theorem.
Jan
7
comment Are there any tools or useful algos for identifying corner portfolios?
@Bryce I downvoted this answer because I cannot find any reference to corner portfolios at all. It is just a basic introduction to some R functions.
Dec
30
comment For the Dothan model $E^Q[B(t)]=\infty$?
You can find the same argument in Brigo/Mercurio - Interest Rate Models - Chapter 3.2.2.
Dec
30
comment For the Dothan model $E^Q[B(t)]=\infty$?
@Roozbe Could you post your solution here for sake of completeness?
Dec
9
comment Book recommendation on robust optimization
Of course its a stretch as I dont know you nor your exact background so you might as well find it easy. You are more than welcome to try and see how you can handle the topics. The book is free for download. If you have a (very) solid background in optimization you schould be able to handle it. For an advanced finance course the books contents will be too much of a specialization I think.
Dec
9
comment Book recommendation on robust optimization
I am afraid for a bachelor in economics, the Ben Tal / Nemirovski book will be far too technical.
Dec
4
comment How to extrapolate VaR?
as @Richard pointed out, the scaling rule depends on the distribution. Value at Risk is a distribution quantile. The Quantile of a Normal Distribution with $\mu = 0$ scales with $\sqrt{T}$, in general it does not!
Dec
2
comment How do I artificially generate intraday ticks data from a given input (Open,High,Low,Close,Volume) using Brownian Bridge method?
@jaamor You could do that, but those times will not be independent I suppose. I think the result wouldnt look too good. I would take the high and low value and use it as a dispersion measure to improve my intraday volatility estimator and then create BB paths from it. They will, in general, not reach the high and low values but the question is: Does it make sense to enforce this?
Dec
2
comment Is an arbitrary prior for Black-Litterman valid? Or do we need a market implied one?
Hope it helps. Lets try to find a day - check your inbox in a few hours!
Dec
2
comment Is an arbitrary prior for Black-Litterman valid? Or do we need a market implied one?
@Richard I tried to clarify my answer a little and added an additional point.
Dec
1
comment Is an arbitrary prior for Black-Litterman valid? Or do we need a market implied one?
@Richard Hallo, I have to check the details about the risk parity portfolio agai and will catch up on that tomorrow.
Oct
7
comment Determine $E[W_p W_q W_r]$
For a normal distributed rv $X ~ N(\mu,\sigma)$, $E[(X-\mu)^3] = \mu^3+3\mu\sigma^2$ (just search for moment normal). In our case, $\mu=0$ and $\sigma = p$. Alternatively, you can calculate it by hand (several times integration by parts) or via the moment-generating function.
Oct
1
comment quadratic programming portfolio optimisation
Hm, thats why I wasn't sure this is the right explanation because $x$ should be $x = [0.8,0,0.5,0,-0.3,0]$ in this case (splitting $x$ up in a positive and a negative part). Now, $x(1:3)+x(4:6)$ is the original portfolio and $x(1:3) - x(4:6)$ its component-wise absolute value.
Oct
1
comment quadratic programming portfolio optimisation
Its not linear because $|-x|\neq-|x|$ which would hold for a linear function.
Oct
1
comment quadratic programming portfolio optimisation
Please provide some more information about the constraints the example employs. There are techniques to reformulate optimization problems that simplify those but I doubt thats the problem here. Does your example use a different solver than matlab? Have you tried solving the example your way and compared the solutions? Further more: If you look at F and multiply with vectors $(x,-x)^T$ and $(x,-x)$ from both sides, you will miss the factor $1/2$. Probably the author moved into the $c$ but without any more information its really hard to say...
Jul
23
comment reference question about portfolio optimization
Although I voted to close this question: You are recommending the Pfaff book. I havent read it yet, is it good? Just a small comment though: #4 is also weritten by Bernd Sherer and those are commercial software packages. #3 Is basically a cookbook for the corresponding R package and treats rather advanced optimization problems (compared to classical MVO).
Jul
17
comment Handling Missing values in stocks returns when estimating the co variance matrix
@user3481555 Well if you delete the stock you simply reduce your investment universe. My intuition says that this induces at least some bias because the stocks with shorter history had a reason to enter the index later on. On the other hand, If you throw away the all the data where at least one stock has a missing value you might run into dimension problems (if you estimate a covariance matrix for hundrets of assets you want to search for "dimension reduction" or "shrinkage" or "robust" in quant.SEs search function). I will see if I can come up with the paper I mentioned...
Jul
2
comment Implementing A 50/50 Prediction Model Strategy
@emcor The 50% rate is only the percentage of right classifications. Just imagine an algorithm that gets the lottery numbers right 50% of the time. See also the comment by Joshua Ulrich
Jun
26
comment economic facts that causes the financial time series to be heavy tailed
For EVT, the more puzzling fact is that the "real" heavy tails do not scale with time...
Jun
23
comment What Is A Good Success Rate Using Machine Learning For A Beginner?
I think this question is definitely appropriate here. I am no expert on this topic, but I think if you use models like that you aim for a success rate that is well above $50\%$ with the amount depending on the cost of implementing the trading signal so that you place bets with an expected value >0. Further more, you would want to add some additional margin (for estimation and modelling error or changing environment for example). It definitely depends on the cost of getting in and out of the position. Thats why there can't be a single target number.