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I'm playing around with different portfolio optimization techniques. Amongst others I was also looking at the resampling method, especially the one described in Meucci. I have two general questions regarding this technique.

Question I would like to know what more expierenced people think about resampling methods? I've noticed that there is a controversial discussion on this site, see this question, as well as in the research area. For example, Scherer critique. On the other Meucci also points out some advantages and mentions the wide usage of this technique in industry. In my opinion, or what I've seen running some expirements, there is no additional gain regarding return but weights are much more stable when you have to recalibrate them. Often it is argued that there is no statistical justification for doing it. There is also a newer paper which gives a justification depending on the "traders style". As you can see there is a variety of articles and I would like to hear from somone with a better overview his / her opinion on the topic.

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  • $\begingroup$ Never heard of this problem before, the weights not adding up to one. $\endgroup$ – Alex C Nov 24 '15 at 1:11
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The benefit to using a resampled efficient frontier is a matter of practicality. Suggested allocations are more stable over time compared to the outputs of a traditional MVO and as a result can require less frequent rebalancing and transaction costs.

If rebalancing frequency and transaction costs are an issue for a strategy then it might be worthwhile to consider the resampling method. If the cost savings from less frequent rebalancing are greater than any negative expected impact from a differential between the output from a resampled optimization versus a traditional optimization then use of the resampling method would be justifiable.

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