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.

Filter by
Sorted by
Tagged with
4
votes
2answers
111 views

What are Market Makers hedging?

I know that the target of the market makers is to provide liquidity to the markets. Right now I'm working as a developer in a quite large project of F.I. I know that they are providing liquidity for ...
0
votes
0answers
36 views

What is momentum factor and how is it calculated based on three parameters?

I have 7 year prices of a group of stocks and index prices for the same time period now I want to calculate momentum factor, depending on the three relevant parameters (rebalancing frequency, rolling ...
1
vote
0answers
34 views

Mean Semivariance Optimization VS PMPT

Mean Semivariance optimization defines semivariance, variance only below the benchmark/required rate of return, as: $(1/T).\sum_{t=1}^{T} [Min(R_{it}-B,0)]^2$ where $B$ is the benchmark rate, $R_{i}$...
0
votes
0answers
48 views

Calculating bond prices from constant maturity yield

Goal: turn a constant maturity yield time series into bond prices. The federal reserve has great data series including this one. This is a time series of historical treasury bond yields and I need to ...
1
vote
0answers
83 views

Machine learning for portfolio optimization

What algorithms from machine learning, supervised learning or unsupervised learning have been recently used for asset allocation models as alternatives to the Markowitz mean-variance optimization ...
0
votes
0answers
65 views

Portfolio and Risk Management: Total Return Index vs Price Index

For portfolio construction and risk management purposes, when one should use Total Return based Index instead of Price Index? I am looking for pros and cons of using either Total Return and/or Price ...
2
votes
1answer
67 views

Stop-Loss strategies

Does anyone know some bibliography about the problems or limitations of using Stop-Loss strategies in a portfolio? Let me explain better: for example you can have a portfolio of 30 stocks from ...
0
votes
0answers
35 views

Notation for the variance in papers

Here is a screenshot from : LIM Quadratic hedging and mean variance portfolio selection with random parameters in an incomplete market When I deal with mean variance portfolios, I usually see the ...
2
votes
1answer
46 views

Is there any way to compare portfolios created using sharpe optimization model?

I created different portfolios using sharpe portfolio optimization model and I want to know is there any way to compare those portfolios before actually investing in them?
0
votes
0answers
42 views

Why use reinforcement learning for portfolio optimization with historical market data?

One of the main advantages of (deep) reinforcement learning approaches (compared to more widely known supervised deep learning approaches) is the fact that it enables us to automatically take ...
1
vote
1answer
60 views

Hedging a trade for PCA component neutrality

Suppose I am given a set of financial instruments, e.g. {1Y, 2Y, ..., 30Y} interest rate swaps or {Barclays, Lloyds, .. } FTSE100 companies. It doesn't matter which so let's go with IRS. I have ...
1
vote
1answer
48 views

Benefit of better predicting the variance of portfolio daily returns while optimizing a portfolio?

Question Is there a benefit of having lower gap between 'in-sample' variance of portfolio daily returns and 'out-of-sample' variance of portfolio daily returns? (= better estimates the out-of-sample ...
1
vote
0answers
61 views

Annualizing Sharpe Ratio using small time frames

I have coded a strategy that works 5m time frame. I know you multiply it by 252 but i am using 5m or sometimes 1h time frame. Which number do i have to chose to multiply? There are 72576 five minutes ...
2
votes
1answer
122 views

Efficient frontier using Post Modern Portfolio theory

I have been trying to find a way to create the efficient frontier using Post Modern Portfolio Theory (PMPT), but have failed to come across a source that mentions how to do so. I know PMPT uses ...
0
votes
1answer
107 views

Portfolio rebalancing question

I found this question and am not too sure how to answer it. How would you determine the minimum cash deposit,m, needed to move a portfolio back to it's target weights, given only the following: ...
0
votes
0answers
56 views

How effective is simplex projection for portfolio sizing? How is Euclidean projection different?

I am looking at a backtesting framework where the authors do a simplex projection to get final long-only weights. They also have a version with Euclidean projection to simplex. I wanted to understand ...
1
vote
2answers
106 views

What duration of treasuries to add to portfolio of stocks

If I have a portfolio of stocks and want to add treasuries would it be better to add very long duration treasuries or a levered position in shorter duration treasuries? Why?
0
votes
1answer
74 views

Prove that the portfolio that maximizes utility lies on the efficient frontier

When maximizing mean-variance utility in a portfolio optimization framework $max \{R - \lambda \sigma ^2\}$ where R is portfolio return, $\lambda$ is a risk aversion parameter, and $\sigma^2$ is ...
0
votes
1answer
69 views

What was the first formal theory for asset selection/portfolio management?

Just curious about the timeline and evolution of asset/portfolio selection theory from past to present
1
vote
0answers
49 views

Why does the price of a butterfly spread increase are rate exponential [closed]

I know that stock prices are assumed to be Stochastic processes that follow Geometric brownian motion. The expectation of stock prices at time T given stock price at time 0 is: $e^{-rT}S_0$. However, ...
2
votes
0answers
42 views

Replicating portfolio with stock, bond and call option

I am trying to interpret: I am having trouble interpreting the replicating strategy: Context: $\phi$ is a generic payoff function, 0 < S < $\infty$, assumed throughout to be twice ...
1
vote
1answer
50 views

Economic term for “limited trade space”? Slots in car sales hall, oil bunker volume, warehouse size

Newbie here. Took the tour, and "financial engineering" was listed as viable questions, so I give this a shot despite being very basic. Please redirect me if there is a more suitable SE site for it. ...
0
votes
0answers
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 ...
0
votes
1answer
32 views

Relationship between portfolios at $t=0$ based on $t=T$

I have two portfolios $V$ and $U$ given by $$ V(S,t) = C-P \\ U(S,t) = S-Ee^{r(t-T)} \\ $$ where $P$ and $C$ denote a put and call option with the same maturity time $T$ and strike price $E$, ...
1
vote
0answers
32 views

Walk Forward Analysis Using Portfolio Analytics R

I am learning how to use the Portfolio Analytics package in R and I am concerned with overfitting the data for the optimization. The optimize.portfolio.rebalancing() function has 2 parameters that ...
0
votes
0answers
41 views

Perfect Negative Correlation - Returns and Risk

In the famous article of Sharpe "Capital Asset Prices: A theory of market equilibrium Under conditions of risk", he studies the behaviour of allocation between an asset $i$ and an efficient ...
1
vote
1answer
115 views

Marginal contribution to Tracking error

I'm trying to calculate Marginal contribution to Tracking error. I would use the following formula: MCTE(asset i)=TE(excess return asset i vs.benchmark)* Beta(excess return asset i vs. benchmark AND ...
1
vote
0answers
18 views

What is the most recent measure of the US Municipal Bond Market Size (Capitalization)?

$3.853 trillion in second quarter of 2018 according to Fed. Today?
2
votes
0answers
29 views

How to calculate Turnover Ratio of a scaled Portfolio

I want to calculate the Turnover of my scaled Momentumportfolio (Barroso und Santa-Clara 2015) They described Turnover Ratio with the following formula: While i understand the general concept (...
5
votes
1answer
83 views

Alternative relative performance measure to Sharpe ratio for non-IID return

The Sharpe ratio is often used to compare the relative performance of portfolios despite its IID-assumption for the returns being violated. I can find ample warnings about the consequences of ...
2
votes
0answers
65 views

When to remove a trading strategy?

Every strategy has a limited lifespan. How do you decide when to stop a particular strategy as it has lost its edge? Few of things that can be thought is strategy crossing its maximum drawdown, net ...
0
votes
0answers
40 views

CRRA Utility Function Problem

"Assume an investor with total wealth of $100 that has a constant relative risk aversion (CRRA) utility function. The functional formula for the CRRA utility function is given as $\ U[W]=\frac{W^{1-θ}...
1
vote
0answers
37 views

Risk neutral valuation [closed]

In a world with three possible states (1, 2, 3) and three assets (A, B, C), the payoff matrix looks like this: $r_A;_1,_2,_3 = 110, 110, 110$ $p_A = 100$ $r_B;_1,_2,_3 = 100, 50, 40$ $p_B = 70$ $...
1
vote
0answers
27 views

Non-redundant asset?

I've been solving many exercises with three assets that have two possible payoffs each, one payoff per possible future state. The question is always the same, i.e. is any asset redundant. After ...
0
votes
0answers
33 views

Eliminating factor risk?

Suppose there are two risky assets, related to the same risk factor $f$. $r_1 = μ_1 + β_1f$ $r_2 = μ_2 + β_2f$ There is also a risk free asset available at $r_f$ How do you eliminate factor risk ...
3
votes
1answer
85 views

Investor rationale behind inverted yield curve

I just had a question regarding investors/markets rationale behind the cause of the yield curve. Assuming that investors believe that rates will be lower in the future and are pessimistic about the ...
1
vote
0answers
45 views

No risk free security?

Imagine market without a risk free security. How is security market line constructed? How is it interpreted?
2
votes
1answer
67 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 ...
1
vote
0answers
45 views

Problems with Performance Attribution Analysis

I am using the typical Brinson Model formula, but it doesn´t work, I think that is explained because of the compound effect and rebalancing... when I look my portfolio's YTD return and multiply by the ...
1
vote
1answer
200 views

Why is it better to use evolutionary algorithms than OLS for solving index tracking problem?

I am currently using different optimization algorithms for finding constrained portfolio that best replicate choosen index. So i have a optimization task to minimize tracking error. I wonder why every ...
1
vote
2answers
193 views

Absorption Ratio

I'm actually trying to implement Mark Kritzman's absorption ratio (Principal Components as a Measure of Systemic Risk by Kritzmam, Li, Page and Rigobon, 2010, SSRN 1633027) using Python, but I'm not ...
0
votes
1answer
86 views

Trading 3 stocks X Y Z where X cointegrated to Y, Y to Z, but no other cointegration is available

Suppose you have 3 stocks, say X Y Z. You also know that X is cointegrated to Y using some test (say ADF) and Y is cointegrated to Z. However, no transitivity, and no threesome cointegration ...
2
votes
1answer
97 views

Why the weight vector of 'global minimum variance' the 'eigenvector' with the minimum eigenvalue?

Question Why is it the case that the weight vector of the global minimum variance portfolio the eigenvector of the covariance matrix with the smallest eigenvalue? Question with more details I ...
0
votes
0answers
20 views

Portfolio Values based on reference interest rates

How do I approach the following question? A portfolio has 100 million invested in equities. It has also transacted an interest rate derivative issued by counterparty X, which the value is 0 if the ...
0
votes
0answers
17 views

Adjust the Capital Market Line For Margin Interest

Modern Portfolio Theory assumes unlimited borrowing and investing at the risk-free rate. Of course, this is not realistic; margin interest costs several multiples of the RFR, especially for portfolios ...
0
votes
0answers
43 views

Calculation of the risk free rate

For portfolio management I need the risk-free to compute the sharpe ratio. I would like the use to rate on the 3 month treasury bill from the US. https://fred.stlouisfed.org/series/TB3MS#0 The ...
1
vote
0answers
32 views

Given multiple strategies with their ER, volatility, how would I calculate the combined Sharpe?

Without knowing the actual daily returns, I have a table something like this: ...
0
votes
1answer
73 views

Testing the significance of active trading strategies other than stocks

In active asset management industry, a common approach to Test whether my Strategy Provides significant alpha is to Regress Portfolio Returns on Fama French 3 (or 5 factors) and check whether the ...
1
vote
1answer
78 views

Naive question: how do factor models inform portfolio construction?

I have read plenty on the topic of factor modelling, but, in the end, after one has decided upon the factors to include in a model, how do all the Betas how tell one how to weigh each asset in a ...
3
votes
2answers
143 views

Max allowable return in Markowitz model

The Markowitz model solves the following problem: The portfolio with the smallest variance among attainable portfolios with expected return µV. Here we have to choose µV to get the optimal portfolio ...