Questions tagged [portfolio-management]

The professional management of an investment portfolio of various securities (shares, bonds and other securities) in order to meet specified investment goals. The process includes the specification of investment objectives and constraints, choice of asset mix, formulation of portfolio strategy, selection of securities, execution, revision, and evaluation.

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CAPM and Marginal Utility: How does this derivation work?

I came across this obstacle in the book Foreign Exchange: Practical Asset Pricing and Macroeconomic Theory by Adam.S.Iqbal(I have attached screenshots below) For 1.40 the author claims that we must ...
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How do you calculate the YTM of a multi-currency portfolio?

I would like to know how to calculate the aggregate YTM of a portfolio with bonds of different currencies
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What underlying distribution does one use while calculating the Stutzer Information Statistic?

Cramer's Theorem is used to derive this form for the Stutzer Information Statistic $I_p$: $$I_p=\max_\theta -\log(E[\text{e}^{\theta r_t}])$$ Here, $r_t$ is the portfolio's excess returns over some ...
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portfolio rebalance weight up and down

I am rebalancing portfolio , where my algorithm has recommended new securities also there are few existing in my portfolio. For simplicity , let's say I want to wight my securities based in ...
120 views

Why minimum variance portfolio is used to construct factor models

I am reading Tsay's classic "Analysis of Financial Time Series" and I have seen him using minimum variance portfolio Relevant passage on the minimum variance portfolio here (Chapter 9, Page ...
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Setup for proving equation 3.4 from Grinold

I'm studying from Grinold's Active Portfolio Management right now, and used the below equation to answer one of the exercises: .. let us assume that the correlation between the returns of all pairs ...
35 views

Asset rate (elasticities ?) of substitution

I'm kind of a newbie in the finance research area. However, I'm working on cross-asset spillovers (transmission of shocks between assets) and my guess is that it comes from investors behaviors. ...
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1 vote
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Fitting a Copula with GARCH volatility to stock returns

I have the log-returns $r_{n,t}$ for 3 stocks, $n=1,2,3$, and $t=1,..,T=365$ days, and I want to model the expected shortfall given arbitrary positions on those stocks. I calibrate the GARCH model ...
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1 vote
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How to create a long-short portfolio on an academic basis

This question may have been asked before, but unfortunately the answers didn't help me very much. It's about how to create long short portfolios. In the papers you often read that they have created ...
1 vote
131 views

Idiosyncratic risk calculation - Advanced Portfolio Management (Guiseppe Paleologo)

I'm struggling with the walkthrough of a calculation within this text. For anyone with the book it's an example from section 3.4.2. I will go through the steps here and show where I am getting lost - ...
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How do you interpret this data about corporate bonds? [closed]

If I have a corporate bond portfolio that has the following relative to the benchmark (this was given to me as interview question): Given an initial portfolio with the following statistics (as of ...
1 vote
196 views

Reverse optimization: How to generate the expected portfolio returns given the weights and a series of constraints on those weights?

I have the below function in Python. My objective is to back out the expected returns associated with certain portfolio weights given a series of assumptions. From this I want to generate the expected ...
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Bonds in a zero interest rate environment

I've been looking at Pension Fund asset allocations. Why would they have any allocation to bonds in an zero interest rate environment? To make the point, let's assume the interest paid on these bonds ...
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254 views

When optimizing a portfolio for risk parity, can any portfolio weights turn negative?

As the title reads, when performing risk parity optimization (equal risk contribution amongst all assets to the portfolio volatility), is it possible for weights to turn negative? I understand that in ...
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131 views

If an option is undervalued, how does shorting a portfolio generate profit?

I am reading Hull's Options book. He introduces a one-step binomial model and a no-arbitrage argument, using the example shown in the picture below: Consider a portfolio consisting of a long ...
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Optimal weights in portfolio after rebalancing

I have a quite simple question but while looking for answers in research papers I couldn't find anything. The question can be summarized as : if you expect a shock on an asset, why don't you rebalance ...
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1 vote
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Measure of hedge efficacy or other means to compare hedging strategies?

Is there a measure of hedge efficacy or another means to compare hedging strategies? I have seen Institutional Investors take very different approaches to tail hedging. On one extreme, I have seen ...
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54 views

JP Morgan CreditMetrics

I am trying to apply CreditMetrics on a 2 bond portfolio. As far as I know, this model returns the expected recovery rate and the volatility between those 2 bonds, so my question is how I calculate ...
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Constructing a Corporate Bond portfolio?

Is it possible to create a corporate bond portfolio such that its yield is 100bps higher that its benchmark, while still outperforming the benchmark (BBG Corporate bond Index)? I guess my question is ...
1 vote
131 views

Standard deviation of large equal-weighted portfolios

Say I've got a portfolio of shares with the following parameters: Let $n$ be the number of shares in the portfolio, let $\bar\sigma$ be the average standard deviation (volatility/risk) for each share, ...
39 views

Commitment devices to remedy investment mistakes?

I'm looking into a new question that came up lately. Some of our clients here are prone to sell their gains too quickly while amassing larger positions of assets that have lost in value. Although this ...
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1 vote
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What is Ei in paper "How to Combine a Billion Alphas" by Zura Kakushadze? [closed]

I am reading paper "How to Combine a Billion Alphas" by Zura Kakushadze. In the paper, it has Ei which are the expected returns for alphas. It also has Ri hat as follows. I wonder what the ...
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Definition of Market-Neutral

I'm reading Qian, Hua and Sorensen's Quantitative Equity Portfolio Management and one part in section 2.3.2 (page 44) states that: "For a long-only portfolio managed against a benchmark, the ...
102 views

Difference between the two definitions of Ulcer Index

The Ulcer Index (UI) is defined as follows on page 89 of the book "Practical Portfolio Performance Measurement and Attribution, 2E" by Carl Bacon:  UI= \sqrt{\sum_{i=1}^{i=n} \frac{D_{i}^...
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Difference between Maximum Drawdown and Largest Individual Drawdown

Bacon in Practical Portfolio Performance Measurement and Attribution distinguishes between the two, specifying that "Maximum drawdown represents the maximum loss an investor can suffer in the ...
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Portfolio factorization for portfolio optimization

I am looking to do some basic portfolio constructions as an experiment to learn more about it. I have been researching a bit and what I have found is that one of the purposes of factors models (Fama-...
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Active risk management of private assets

It seems incredibly difficult to not only come up with a list of options for active risk of private assets (Private Equity, Private Credit, Infrastructure, Real Estate, etc.) but also get senior ...
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Average drawdown and average drawdown length in Python

I'm trying to use Python to give me more information about drawdowns than just the max drawdown and the duration of the max drawdown. I would like to determine the number of drawdowns that have ...
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1 vote
150 views

Shortcut for cutting portfolio volatility

When calculating the portfolio's historical volatility, do I need to factor the volatility of each asset individually and then do a covariance calculation or can I get away by measuring the volatility ...
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Calculating tangency portfolio weights with the given information? (2risky +riskfree asset)

We have 2 risky and 1 risk-free asset. E1 = 4%, STD1=10% E2 = 5.5%, STD2 = 20% rf=1.5% The covariance matrix and it's inverse are given: ...
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1 vote
49 views

Calculate fund size given risk limit?

I was listening to a podcast and this guy mentioned the following (literally): The entire group is probably running 800 million at risk. So I'm going to say like call that like a, if you think of ...
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1 vote
184 views

Why do better-performing index funds not get a higher weight? [closed]

Most financial advisors recommend to inexperienced investors to put a large part of their investment in broad index funds (e.g. SPY). They will usually reiterate that most actively managed funds ...
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Does it make sense to have an allocation to short term fixed income and a leveraged or unfunded position?

This may sound like a basic question but I have seen many large institutional investors have this as part of their asset allocation and am wondering why they do this? Does it make sense to have a ...
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Theory: Based on Hansen/Jagannathan, the set of means and variances of returns is limited. With $R^f$ as the risk-free rate, $R_i^e$ as the return of stock $i$ in excess of $R^f$ and a stochastic ...