Questions tagged [asset-allocation]
An investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investors risk tolerance, goals and investment time frame.
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Kelly Criterion in correlated stocks
I would like to ask if there exist any mathematical proof or model which addresses how the Kelly criterion can be applied to find portfolio weights when the stocks are correlated.
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30 views
Equivalent constructions of risk budgeted portfolios?
When building an ERC portfolio given covariance $S$, I am familiar with the approach in optimalPortfolio. It takes the risks of a given weight vector $(w_i * (S w)_i)$, divides it by total risk to get ...
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1answer
48 views
Trading Ranges for Tactical Asset Allocation
Do methods exist to determine trading ranges around benchmark weights/strategic asset allocation weights for a tactical asset allocation from the correlation structure between the individual asset ...
4
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1answer
78 views
What are non-variance (non Markowitz) based theories of capital allocation between non-correlated assets?
A large amount of literature in finance accepts the standard deviation in return as if it were an accurate measure of "risk."
What are some other financial theories for how to allocate capital ...
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1answer
50 views
Highest asset allocation contribution to the fund’s performance
I am preparing for 2020 May FRM II test and will appreciate any explanation for this question:
In terms of asset allocation contribution, why is real estate made the highest asset allocation ...
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0answers
24 views
Forecast dates and related actions
My question is quite general and is about the coherence between forecast horizon, then forecast dates, and related actions. As example we can keep in mind the asset allocation problem. It seems me ...
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2answers
99 views
What does the concept “standard Markowitz approach” include?
Does "standard Markowitz approach" include only mean-variance approach or does it also include other approach such as minimum-variance approach?
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1answer
104 views
Portfolio/sub-portfolio optimization
I have a finite amount of 26 assets, the total amount of these assets needs to be allocated to 9 portfolios. Each portfolio has its own required return which needs to be met, using a min-variance ...
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3answers
331 views
Is there a way to figure out “hot” strategies?
Apparently, short vol strategies have gotten crowded, according to the recent Bloomberg piece. When I read this, I thought how about factor based strategies -- value, growth, etc.? Aren't they ...
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0answers
40 views
How long a time horizon should be for verifying the effectiveness of an investment strategy?
Question
To verify the effectiveness of a certain asset allocation strategy, how long a time horizon should be?
Is there any academic paper regarding this topic?
Question in more detial
I know ...
2
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1answer
91 views
How to calculate Information Ratio?
In the book titled "Active Portfolio Management: A Quantitative Approach for Producing Superior Returns and Controlling Risk" by Grinold & Kahn, the information ratio is defined as "the ratio of ...
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2answers
347 views
Strategic asset allocation research
I am currently trying to form an overall asset allocation strategy which combines base strategic allocation and tactical shifts. My model already incorporates the tactical shifts using various factors ...
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2answers
118 views
Optimal investment mix of equity and debt in a single company, HY vs IG
What is the optimal mix of equity and debt that an investor should invest in a single company?
If an investor invests in both the debt and equity of a company, they are in effect de-levering the ...
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1answer
217 views
Expanding window vs Rolling window z-score
I wish to find the z-score of a value measure( e/g P/E ratio) to compare them across asset classes, currently i am using an expanding window z-score to calculate the long-term mean and standard ...
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0answers
40 views
Crisis in in-sample period
I am backtesting a value momentum asset allocation strategy and my in sample period is from 2003 to 2011 and out sample from 2012 to 2019. I am optimising a cutoff for value on in sample to allocate ...
4
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1answer
101 views
Stress Testing approaches at Pension Funds/Asset Management companies
I am looking for resources on Stress Testing for non-banking institution, specifically for long term oriented Asset Management companies, Hedge Funds, Pension Funds, and other Investment companies. ...
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0answers
84 views
Residual Risk and Variance
I've solved part a, but am struggling with b and c. $x_m$ is the market portfolio vector, and I think $T$ should be a diagonal matrix. Any hints greatly appreciated!
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2answers
116 views
Multi-period portfolio allocation: Time-inconsistent approach
Consider a multi-period mean-variance portfolio optimization so that at time $t$ I find the strategy that maximizes my expected terminal wealth $X_T$, subject to a constraint on risk,
\begin{align*}
\...
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2answers
2k views
Implementing leveraged Risk Parity Portfolio using Direxion 3X ETF
The "common man" version of a leveraged Risk Parity portolio (40% stocks and 60% long term bond, Quarterly Rebalanced) can now be easily implemented using the 3X leveraged ETF's (UPRO=stocks, TMF=...
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0answers
108 views
Black-Litterman proof with P=I and Omega=tau*Sigma
Elsewhere on this site (link), Richard notes that
\begin{equation}
\Pi_{BL} = \frac{1}{2} \Pi + \frac{1}{2}Q,
\end{equation}
so long as we set $ P = I $ (where $I$ is the identity matrix) and $\Omega ...
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2answers
620 views
Calculate asset allocation given “long and short” optimized portfolio weights
If the amount of capital that has to be allocated for each asset given the "long only" optimized portfolio weights is:
...
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2answers
3k views
How to calculate “portfolio cumulative return” from individual price data and weight of them?
I'm trying to run backtest in a vectorized way using Python Pandas and need to calculate a portfolio cumulative return from price data and weight of asset data.
I ...
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1answer
129 views
MPT Efficient portfolio /Asset allocation
When finding the optimal allocation using markovitz, the model will return '0' weights for assets that are "inefficient". What is the standard way for dealing with these weights if all assets have to ...
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0answers
21 views
Reference request: Terminal wealth distribution including deterministic contribution
I'm looking into some classical utility maximization problems. In particular, I'm interested in looking at the wealth evolution where you invest your money across $n$ assets and each time period you ...
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1answer
138 views
Dynamic asset allocation strategies using a stochastic dynamic programming approach
I am currently reading Gerd Infanger's Chapter 5 on "Dynamic asset allocation strategies using a stochastic dynamic programming approach" in the Handbook of Asset and Liability Management edited by S....
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1answer
124 views
Preference between low (zero) and negative correlation
I am trying to create an artificial score grading user's portfolio correlation. In terms of diversification, lower correlation is obviously better. However, should negative correlation get a higher ...
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0answers
240 views
Problems with Black-Litterman: negative portfolio weights, and very poor returns
I am trying to implement the Black-Litterman model using own-defined views matrix (from consensus analysts). However, I have encountered the problems of negative portfolio weights in some periods, and ...
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2answers
586 views
Risk Parity / Equal Risk Contribution with Tail Risk Measures
Risk Parity or (synonymous) Equal Risk Contribution is an approach to portfolio construction which could work in theory with a broad class of risk measures. Yet, all references I have found so far ...
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1answer
370 views
Ledoit Wolf shrinkage with constant correlation prior with tawny and Riskporfolios
I am trying to use R to perform the shrinkage of covariance matrix towards constant correlation as defined in 'Honey, I Shrunk the Sample Covariance Matrix'.
I see there are two packages where this ...
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0answers
55 views
Looking for: List of 30 top-performing value investors in the US (AUM 100USD mn+; 10 years)
we are currently looking to build another database sourced by crawling the SEC (freely available at SimFin).
Our goal is to build a monthly updating database showing the holdings of the top value-...
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0answers
249 views
Mean Variance Optimization of 2000 pairs of securities (Python)
I would like to take the opportunity to ask for your help on an assignment I'm trying to complete.
For this 'Modern Robo Advisory' course we are asked to solve a (target) goal-based investment ...
3
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1answer
202 views
Why is this utility function not picking up its penalty?
I was reading this seminal paper by Infanger. On page 40, Figure 11. was quite interesting. In particular I was interested in the top one, 19 Years and I wanted to reproduce this plot. To give some ...
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0answers
53 views
Is the 'constant weight in the risky asset' portfolio-strategy self-financing?
My question concerns a topic in quantitative finance that I feel is often brushed under the table: is a given strategy self-financing.
We have two assets, one risky and one riskless, defined by the ...
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1answer
182 views
In practice, how do pension plans determine their risk appetite?
While I understand DB pension plans tend to use an ALM and surplus management framework to determine their asset allocation and risk/return objectives, I am wondering how in practice they determine ...
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4answers
2k views
Why is Markowitz portfolio optimisation so popular considering it is worse than an equal weighted portfolio?
The original paper by Markowitz from the '60s has ~20,000 citations (definitely popular). However several papers I came across show that a $\frac{1}{n}$ asset allocation gives higher Sharpe ratios (...
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2answers
1k views
Equivalent to Matlab's financial toolbox in python?
I've been working on making an asset allocation model that requires I price a lot of financial instruments (i.e. bonds, options) and optimize based on a certain constraint. I was originally doing this ...
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2answers
2k views
Calculating alpha and its meaning
According to wikipedia, CAPM model is described by:
$E(R_{i})=R_{f}+\beta _{{i}}(E(R_{m})-R_{f})$
And according to website such as http://investexcel.net/jensens-alpha-excel/,
$\alpha = E(R_{i}) - ...
2
votes
1answer
592 views
Minimize overall portfolio turnover under constraints
Assume I have M portfolios, each of them can be represented as a T by N matrix, where N represents number of stocks traded and T represents number of days. For each portfolio matrix, each row is under ...
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2answers
724 views
Does CAPM hold for markets with two risky assets?
Presentations of the CAPM often include statements similar to this:
While idiosyncratic risk can be "diversified away", systematic risk cannot, which is also expressed in the CAPM, which states ...
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0answers
36 views
Target date funds - glide path quantitative foundations?
Are there any introductions that show an academic proof or quantitative process for determining the proper asset allocations for a glide-path in a target date fund?
I've been trying to find something ...
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2answers
609 views
Is mathematical finance relevant in asset managament?
I was hoping to consult on the relevance on the relevance of mathematical finance in the asset management business. Traditionally, mathematical finance focuses more on topics related to stochastic ...
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1answer
1k views
PortfolioAnalytics [R] - optimize.portfolio.rebalancing error
New to using PortfolioAnalytics (and fairly new to R in general) and am encountering an error when running optimize.portfolio.rebalance -- see below:
Error in ...
3
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4answers
176 views
What ultimately determines trading costs?
In equity markets, there are obvious transaction fees such as brokerage, commission fees etc.
But if I wanted to do a more in-depth analysis of the determinants of transaction costs, what would be ...
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1answer
132 views
Simple simulation model of bond plus cash returns
Is there a robust way to model 'bond plus cash' simulated returns, say in Excel, for an asset allocation problem between stocks vs bond plus cash?
For equity, ...
2
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3answers
234 views
Portfolio optimisation by asset allocation
I would like to optimize a portfolio allocation (maximizing the exposure or the expected return), but with asset constraints. (some parts of my portfolio cannot exceed a certain minimum or maximum). ...
2
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1answer
421 views
How can I set portfolio weights inverse to volatility, with constraints and target volatility, using nonlinear optimization?
There are multiple sources that describe using a nonlinear optimization to risk budget a portfolio, with a portfolio target volatility. For example, see pages 16 and 17 of https://papers.ssrn.com/sol3/...
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2answers
607 views
Asset allocation problem using Hidden Markov Model
I am recently getting more interested in Hidden Markov Models (HMM) and its application on financial assets to understand their behavior. But what captured my attention the most is the use of asset ...
3
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0answers
628 views
Modelling log-returns and calculating the portfolio return
I know this might be a trivial question, however, I would be grateful for some clarification. I am working on weekly log-return data, doing volatility-foracasting using GARCH models and then using ...
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0answers
647 views
backtest asset allocation strategies
I've searched the site but haven't found an easy way to backtest my personal portfolio allocations. Suppose I want to know the total return for the following portfolio from Jan 1, 2009 to Dec 31, 2014:...
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2answers
960 views
Monte Carlo based mean variance optimization
I was asked this question in an interview some years ago. It struck me as a poorly formed question. I thought I would put it out there to the community to see if I just simply missed something.
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