Questions tagged [mean-variance]
The mean-variance tag has no usage guidance.
2
votes
1answer
65 views
Mean-variance maximization
I denote by $W_0$ and $W_1$ the wealth of an investor at $t=0$ and $t=1$, respectively. Let $r_f$ be the risk free rate, $r$ the vector of returns of the risky assets in excess of the risk free rate, ...
2
votes
1answer
67 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*}
\...
2
votes
3answers
322 views
Efficient frontier doesn't look good
Hi I'm trying to draw an efficient frontier. Below is what I used.
returns parameter consists of 9 column returns of portfolio. I selected 10,000 portfolios and this is how my efficient frontier ...
0
votes
1answer
54 views
Mean Variance optimization on hourly data with gaps
I'm building a mean variance optimizer for a portfolio of FX, commodity and bond futures. The input data is hourly returns for each underlying. Given each underlying has different market opening hours,...
1
vote
0answers
74 views
Mean-Variance portfolio: How do I compute the variance when the portfolio is normalized
Let's consider the very basic of a Mean-Variance Portfolio:
$$
\text{max}_{x}
(1-\lambda)\sum_i^n\mu_ix_i-\lambda\sum_i^n\sum_j^n x_i Q_{ij}x_j
$$
$$\text{ s.t. }\sum_i^nx_i=1 \text{ , } x_i \geq ...
2
votes
1answer
109 views
Portfolio optimization with non-linear cost
I am trying to solve a mean-variance problem with a non-linear market impact cost term in there. This is the problem I am trying to solve
$$ \max_x \left ( \alpha x - \gamma x' \Sigma x - a\sqrt{|x-...
1
vote
1answer
47 views
Smart transaction cost model (for spread contracts)
In futures there exist exchange traded calendar spread contracts, which trade as a single unit (think May/June Crude Oil). The bid ask spread for the spread contracts is the same as that of the ...
1
vote
0answers
131 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 ...
-1
votes
1answer
47 views
How to find beta from the information given? [closed]
This is an exam question. I know that to find beta I need the covariance between the portfolio and asset A but don't know how to find it.
1
vote
0answers
76 views
“Porting” an alpha strategy to a different benchmark
I'm reading about the mean-variance optimization of active portfolios. A bit of prior background from the book I'm reading: the author discusses the mean-variance optimal portfolios without cash, ...
1
vote
1answer
92 views
Economic intuition behind pricing cash flow
I read the book of Skiadas Asset Pricing Theory 2009. I don't quite understand what does mean pricing cash flow. In the book it's written:
$\textbf{Definition 2.9}$ A cash flow $x^*$ is a pricing ...
6
votes
3answers
369 views
Generalized Mean Variance Portfolio
Utility based portfolio optimization deals with the problem of finding the optimal portfolio $x_T$ by maximizing the utility/objective function $O(x_T,x_0)$ where $x_0$ is the current portfolio.
In ...
2
votes
2answers
938 views
mean variance optimization vs max sharpe ratio
I keep reading/hearing that the results from mean-var optimization is max Sharpe ratio. It seems making sense if you fix either target return or target risk, but in general, it doesn't seems right, ...
3
votes
0answers
169 views
Trouble computing the VaR for Student's t-distribution for a minimum-variance portfolio composed of four cryptocurrencies (BTC, ETH, LTC, and XMR)
I have modelled the time-series of daily log-returns from August 2015 to October 2017 of a minimum-variance portfolio composed of four cryptocurrencies (BTC, ETH, LTC, XMR) by fitting the data to four ...
1
vote
1answer
151 views
Solving a system of two equations with non-convex matrix multiplication for MV optimization
Scenario: I am trying to do a variation of the MV optimization for a portfolio. In this instance, I already have a vector of mean returns ($\mu$), a vector of ones, a covariance matrix ($\Sigma$), and ...
0
votes
0answers
92 views
Units of Risk: Variance vs Standard Deviation
Suppose you are trading two mean-reverting assets, A and B, and that $Covar(A, B) > 0$. You are currently long one unit of A, and are considering buying one unit of B. Compared to the situation ...
6
votes
2answers
2k views
Why does the Markowitz mean-variance model require the assumption of normality?
Given $N$ assets, the Markowitz mean-variance model requires expected returns, expected variances and a $N \times N$ covariance matrix. The joint distribution is fully defined by these measures.
...
1
vote
2answers
135 views
Help on minimum variance optimization on U.S. Equity/Bond ETFs - Intuition
I run a MVP on 10 ETFs: SPY, SDY, IWB, XLP, VGT, BND, XLF, IJR, XLY, XLI from 2008 to 2016 on monthly return data. The weighs array (I am using a MATLAB function "Portfolio" - constraints are simple: ...
1
vote
0answers
45 views
How to hedge a MV portfolio against crises
I have constructed an adjusted Mean-Variance portfolio optimization method that optimizes the exposure in a set of X assets.
The portfolio works perfectly fine during normal periods (even when there ...
3
votes
1answer
224 views
Optimize portfolio of non-normal binary return assets
I am facing t = 1,..T investment periods where each period I have x$ to invest. Suppose each period I can build a portfolio from thousands of assets (some are uncorrelated whilst some are highly ...
2
votes
1answer
535 views
For any efficient portfolio, does there exist another efficient portfolio which has zero correlation with it?
For any portfolio on mean-variance efficient frontier, does there exist a portfolio on the frontier which has zero correlation with it?
I tried to play around with the covariance, by setting ...
1
vote
2answers
233 views
Mean-variance portfolio returns illogical weights
I have a dataset with 5 assets.
I apply mean-variance portfolio:
...
0
votes
1answer
482 views
CVXPY 's constrains doesn't work
I am trying to implement a max return optimization with a large number of assets. I am not sure why this problem won't work.
...
1
vote
2answers
2k views
Risk contribution of part of a portfolio
Is it quantitatively sound to say that if I have assets $x, y,$ and $z$ in a portfolio, and that the total variance of the portfolio is defined as
$\sigma_p ^2 = w_x^2\sigma_x^2 + w_y^2\sigma_y^2 +...
2
votes
3answers
408 views
Mean and standard deviation of price series with Kalman
I like to calculate the mean and standard deviation of a price series, using the Kalman filter. I am somehow stuck with the deviation, or have some problem in understanding, which my research could ...
2
votes
1answer
2k views
Mean Variance portfolio optimisation (Long Only) CVXPY including cardinality constraint
I am working on a portfolio optimisation that requires me to constrain on the number of assets used, e.g from S&P500 build a 20 asset portfolio that is feasible. After doing some research I came ...
3
votes
0answers
105 views
Relation between mean and variance of a portfolio in modern portfolio theory:
I hope that this is the right place to ask my question!
Let a market with $N\ge1$ risky assets and denote by $(R_i,i=1,\cdots, N)$ their returns and $R$ the vector of these $N$ returns. In addition, ...
1
vote
0answers
110 views
Should the number of Markowitz Optimization steps be counted as backtest trials?
I'm backtesting a strategy that involves monthly investments in a few stocks out of a given set, that is, each month some of the stocks are shortlisted from an index and a long position is taken in ...
3
votes
1answer
403 views
Dollar-Neutral in addition to Market-Neutral?
What is the point/benefit of using a dollar-neutral strategy in addition to a Beta-neutral strategy? What exactly does a dollar-neutral strategy buy the investor? What's useful about balancing long ...
2
votes
0answers
203 views
Minimum Variance Portfolio problem [closed]
Minimum Variance Portfolio
Suppose there are N stocks in the investmentable universe and we have a fully invested portfolio investing 100% of the capital. The Covariance matrix is denoted as ∑. We ...
2
votes
1answer
52 views
Are financial returns considered more volatile in recessionary times as opposed to expansionary times?
I need help in understanding some results that I have obtained.
I am doing some out-of-sample performance analysis for different targets of volatility in mean-variance optimization where I solely ...
2
votes
0answers
522 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 ...
5
votes
3answers
368 views
Is this realized “efficient” frontier reasonable?
I have performed some out-of-sample analysis of mean-variance optimization with monthly rebalancing. Studying the "realized efficient frontier", I am worried that something is wrong.
Since the ...
4
votes
2answers
702 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.
...
1
vote
1answer
33 views
Are Variances generally stable for any given instrument?
My hesitation, as I look at getting into forecasting based on observed variances, is the nagging question - if variances are not constant per-instrument, is it any good to use the last month or year's ...
4
votes
1answer
227 views
Calculate mean variance portfolio
I am trying to calculate the mean variance portfolio using the plug-in approach.
First I generate some artificial data:
x <- replicate(10,rnorm(1000))
Then I ...
2
votes
1answer
57 views
Can the differential operator be removed to get the mean/variance of an Ito process?
If $X_t$ is an Ito process, such that:
$dX_t = \mu(t, X_t)dt + \sigma(t, Xt)dW_t$ where $W_t$ is a standard brownian motion.
Then we can say that:
$E(dX_t) = \mu(t, X_t)dt$ and that $Var(dX_t) = \...
3
votes
2answers
482 views
How to perform portfolio optimization with user-defined expected return and variances using R?
I found some functions for Markowitz mean variance portfolio optimization in R such as portfolio.optim in tseries package.
...
5
votes
2answers
316 views
Mean Variance Portfolio theory and real-world problem?
There are many assumptions on mean-variance portfolio theory and they seem to be very unrealistic, for example
1) investors have the same information at the same time:
calculating expected returns ...
3
votes
0answers
221 views
Finding mean vector and covariance matrix for annual returns given quarterly returns
I am currently trying to calculate a vector for the mean annual returns of 4 different asset classes along with their 4x4 covariance matrix in excel. However, I am having problems since the data I ...
4
votes
1answer
372 views
Matlab Portfolio Optimization with bid ask spread
I'm trying to find the optimal portfolio of options and stock which minimizes the standard deviation of the portfolio returns but also taking into consideration the bid and ask prices of the assets. ...
2
votes
1answer
262 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 ...
1
vote
1answer
981 views
How to implement Konno's Mean-Absolute Deviation Portfolio Optimization Model using LP methods in Excel
Konno proposed a LP method for portfolio optimization using the Mean Absolute Deviation (MAD)
3
votes
1answer
594 views
Markowitz Mean-Variance Implied Returns
What is the closed form solution for the following inverse Markowitz problem?
Given a mean-variance optimized fully invested portfolio $X$, a risk aversion parameter $\lambda$ and a var-covar ...
2
votes
1answer
99 views
Critical Appraisal of Approaches countering Parameter Uncertainty in Portfolio Optimization
It is very hard to come up with legit and solid advantages and drawbacks of the various approaches wich are trying to counteract parameter uncertainty in portfolio optimization procedures. In my ...
2
votes
3answers
1k views
Finding Expression for Optimal Markowitz Weights
So there are two assets with return rates $r_1$ and $r_2$ which have identical variances and a correlation coefficient $p$. The risk free rate is $r_f$.
I need to find an expression for the optimal ...
3
votes
1answer
583 views
formulating MVO with costs
I am trying to formulate this simple MVO utility function with a linear transaction cost penalty added using Quadprog in MATLAB
tcost = 0.001;
lambda = 4;
mu = vector of expected returns (say 4x1)
S ...
0
votes
2answers
260 views
Mean Variance Analysis: what does the solution of the following exercise tells me?
I'm new in here and I hope this is the right board to ask this question. I'm at second year of university and in the Informatics II course the lecturer made us solve the following mean variance ...
2
votes
2answers
4k views
Calculating the efficient frontier from expected returns and SD
I'm trying to calculate the efficient frontier (and the optimal portfolio at the Sharpe ratio) given two vectors for a portfolio: (1) expected returns and (2) historical standard deviations. I would ...
1
vote
0answers
111 views
Transform MPT optimization problem
I am trying to teach myself about MPT and optimization.
I understand that MPT solutions can be found using three equivalent optimization problems:
Minimizing variance for given return limit
...
