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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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1answer
532 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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1answer
359 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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1answer
253 views

How to enumerate all the possible portfolios with a given target volatility?

Let's say I have $n$ assets and their returns are stored in a matrix $X \in \mathbb{R}^{m \times n}$ (i.e. I have $m$ returns for each of them. The covariance matrix of the returns is $\Sigma \in \...
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0answers
65 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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84 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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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
623 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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138 views

Quantitative method to select tactical bands for asset allocation

Do you know a study with a methodology for selecting tactical bands (or the allowed deviation from a strategic asset allocation)? Thanks
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2answers
149 views

Controlling portfolio concentration

I'm working with a heterogenous basket of instruments (in volatility terms). Risk parity allocation seems to be useful for the portfolio( * 1/Volatility). However, there are times when the ...
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1answer
185 views

Asset Liability Management Test Topic Interpretation

I will write a test based on Excel and one of the topics is "The Asset Liability related analysis: including the input assumptions generation, constraints, portfolio optimization analysis and results ...
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1answer
587 views

why banks shall keep short term gap position low?

I'm reading "Insights for Bank Directors" (http://www.stlouisfed.org/col/director/reference_view.htm), a good introduction to commercial banks, based on a virtual bank "Insight". It talks about Gap ...
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1answer
90 views

Understanding portfolio weights and purchasing stock in modern portfolio theory

Recently I've been learning about the markowitz algorithm. It's pretty interesting, but I'm curious how we apply this in practice. Lets say I have some optimal portfolio: $R_p = x_aR_a + x_bR_b$ ...
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1answer
108 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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1answer
117 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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1answer
129 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, ...
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1answer
435 views

How to answer this interview programming question about drawdowns?

I saw this question as an interview, and to be honest, I have no idea what it's even asking for: Write a function (in R or Python) that finds the stock drawdown which will trigger a rebalance, if ...
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1answer
192 views

bootstrap asset allocation

I want to ask if the bootstrap method for asset allocation is preferable. For instance, suppose that we have data for the past returns for two stocks. Is it wise to generate the efficient frontierby ...
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1answer
307 views

Volatility Estimation

Let say I ran two strategies and got its weights at each rebalance and equity curves. I would like to combine these systems to get the performance if I were to trade them concurrently from a portfolio ...
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1answer
57 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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0answers
38 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 ...
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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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0answers
176 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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0answers
222 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 ...
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0answers
47 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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34 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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1answer
981 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 ...
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299 views

Asset allocation and GARCH models

I am trying to solve an asset allocation problem and I am having some troubles grasping the concept. I am working with excess returns on 4 stock indices and I am obtaining the excess returns forecasts ...
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2answers
552 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 ...
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2answers
217 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
588 views

High values of skewness and kurtosis of realized protfolio returns

I am investigating some asset allocation strategies and I am wondering about the results I obtain. I am working on monthly and weekly data of the same stock indices (SP500, FTSE 100 etc). And when I ...
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1answer
47 views

Transaction Costs Measure ATOP: What does it mean and exactly measure?

I went through some presentations about LowVol strategies for some indices. In the presentations were tables with average returns, vola, Sharp ratio and ATOP. I have no clue what this ATOP is supposed ...
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2answers
396 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
2k 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
111 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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1answer
52 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 ($\alpha_1$, $\...
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36 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 ...
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34 views

Cross-Sectional Multi-Index Model

I'm unsure how to find the covariance matrix in part (b) and what the residual deviations are. Any tips on how to tackle this?
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1answer
104 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
172 views

Math basics of Equally-weighted Risk contributions

i'm writing my BA Thesis about "Equally-weighted Risk contributions". Can anyone recommend math books for further understanding of Risk contributions?
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1answer
123 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 ...
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2answers
260 views

How to use mean-variance weights in practice (when going short is allowed)? [closed]

I have calculated my optimal portfolio weights following the mean-variance framework where I go $w_1$ in the risky asset and $1-w_1$ in the risk free rate. I get the following result: $w_1$ = 1.5, 1-$...