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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Why does the minimum variance portfolio provide good returns?
I've been a researching minimum variance portfolios (from this link) and find that by building MVPs adding constraints on portfolio weights and a few other tweaks to the methods outlined I get ...
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What type of investor is willing to be short gamma?
As far as I understand, most investors are willing to buy options (puts and calls) in order to limit their exposure to the market in case it moves against them. This is due to the fact that they are ...
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Why shrink the covariance matrix?
I'm trying to understand why it's useful to shrink the covariance matrix for portfolio construction or in fact general. Think I missing something. I know if you have 5,000 stocks it's a lot of ...
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What are reasons not to do factor investing in equity markets?
Factor investing in equity markets is one of the hot topics of these days. Many manufacturers of investment products offer exposure to small cap, momentum, minvol, value and other pure factors or ...
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Portfolio optimisation with VaR or CVaR constraints using linear programming
I would like to optimize a portfolio allocation (maximizing the exposure or the expected return), but with VaR or CVaR contraints. (some parts of my portfolio cannot exceed a certain VaR)
How can I ...
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Diversification, Rebalancing and Different Means
I have found many financial authors making generalizations about the geometric mean (GM) and arithmetic mean (AM) but they are wrong in certain circumstances. Could someone explain their reasoning?
My ...
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What books should any quantitative portfolio manager or risk manager have as reference? [closed]
I'm interested to know what are the critical reference texts you rely on for portfolio or risk management? I mean those texts that you come back to because they are chock full of insight and know-how. ...
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Why do expected return models and risk models use different factors?
This is a question responding to weekly topic challenge. I happen to see an interesting question from SYMMYS by Michael Kapler.
I always approached expected return and risk modeling as separate
...
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Hedging Covid-19 and other low probability high loss risks
Covid-19 and similar risks are low probability, high loss events. Does it make sense to utilize options to provide hedges for such events? For example, should one utilize long positions in deep out-...
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Testing Valuation, Size and Momentum (proprietary factors) from 1988-2013: No evidence of driving cross-sectional returns
I am currently testing whether three proprietary factors - Valuation, Size and Momentum - explain cross-sectional returns. A sample of 3000 securities was tested using Fama-MacBeth two-pass ...
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How do I calculate the skewness of a portfolio of assets?
I need to calculate the skewness of a portfolio consisting of 6 assets. I know that for that I would need the co-skewness matrix between the assets. Does anybody know the formula for co-skewness or ...
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Role of skewness in portfolio optimization?
What is the role of skewness in portfolio optimization?
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Are there references about liquidation, transaction, market impact costs in portfolio optimization
I am looking for some references treating of what I would call
liquidation cost
market impact cost
transaction cost(*)
in the usual "portfolio optimization problem under linear constraints".
Let ...
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Risk Budgets with Target Portfolio Volatility
I'm working through the implementation of a risk budgeting approach as described in the recent Roncalli paper. The idea is that the portfolio manager sets a contribution of total portfolio volatility ...
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Real world application of stochastic portfolio theory
There is a branche of stochastic portfolio theory (see also this question).
Fernholz and Karatzas have published research in this field (e.g. "Diversity and relative arbitrage in equity
markets") and ...
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Which algorithms do robo-advisors use?
Some pundits claim that there is a revolution in portfolio management under way: The rise of the robots, a.k.a. robo-advisors. The most well known are Betterment.com, FutureAdvisor, Schwab Intelligent ...
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Optimization: Factor model versus asset-by-asset model
In portfolio management one often has to solve problems of the quadratic form
$$
w^T \Sigma w + w^T c \rightarrow \min_{\omega}
$$
with portfolio weights $w \in \mathbb{R}^N$ a constant $c \in \mathbb{...
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R: Fast and efficient way of running a multivariate regression across a (really) large panel (First pass of Fama MacBeth)
I am attempting to run a rolling multivariate regression (14 explanatory variables) across a panel of 5000 stocks:
For each of the 5000 stocks, I run 284 regressions (by rolling over my sample period)...
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Are there any tools or useful algos for identifying corner portfolios?
Let's say I am performing mean-variance optimization subject to some weight constraints.
I'd like to identify the set of corner portfolios so that I can interpolate the entire efficient frontier. A ...
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Is creating constrained random portfolios a hard problem?
Creating random portfolios with weights $x_i$ can be thought of as sampling from the surface of a simplex given by $$Ex = f$$ and $$Ax \le b$$ Where $E$ and $A$ are constraint matrices for equality ...
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Optimization procedure for entropy pooling
I was wondering if those who used the entropy pooling code provided by Attilio Meucci had issues with the optimization procedure (especially regarding the fminunc function in Matlab). When I stress ...
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Bayesian or Frequentist in Finance?
I'm currently an undergrad at a Canadian university and our finance courses has been brought up through the frequentist approach (ols, hypothesis testing, sampling theory). Only recently, through ...
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Does entropy pooling apply to distributions with time-varying drift?
I have a returns process that is drawn from a normal distribution with a nonlinear time-varying drift, so I was wondering if the entropy pooling method still applies or if I need an invariant ?
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Alternate money management strategies to Kelly?
Other than Kelly (or fractional derivatives), are there other money management strategies in wide use among quant funds? Certainly Kelly is mathematically optimal, but perhaps there are other ...
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robust portfolio optimization re-balancing with transaction costs
The optimal re-balancing strategy takes account of factors including i) objective function, ii) current portfolio weights, iii) expected return vector containing updated views/alpha forecasts, iv) ...
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On the interface between Quant finance and actuarial-science/insurance-math
Actuaries (at least in Europe) are frequently severily lacking in quant finance topics. At best they are familiar with B&S model.
People going into quant finane or striving to become a quant on ...
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How to compute performance attribution between daily rebalanced strategies?
I have a daily rebalanced portfolio of several strategies.
After one month, I now want to attribute the performance to the different strategies. There are several ways to do it.
For instance one ...
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What is the total correlation between assets in a portfolio?
Suppose I have portfolio with 10 assets, each one of them with a weight of 10% from the total portfolio (equally weighted).
It's well known how to measure from historical prices->returns a variance-...
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Calculate turnover for portfolio
I am trying to calculate the turnover for a portfolio strategy.
First I generate some random data and assign it dates:
...
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penalizing negative skewness by linking $U(\mu)$ and $U(\Sigma)$
Consider $U_1(\mu,\Sigma)$ and $U_2(\mu,\Sigma)$, where $U_1(\mu, \cdot) = U_2(\mu, \cdot)$, $U_1(\cdot, \Sigma) = U_2(\cdot, \Sigma)$ such that
\begin{equation*}
arg\inf\limits_{\mu \in U_1(\mu, \...
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Computing Value at Risk for portfolio in R [closed]
I know how to compute VaR with long positions using PerformanceAnalytics. What about a portfolio consisting in two equities A and B, 100 USD long positions in each, and 2 stock options for the same ...
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Suppose that we are wrong about the relevant class of distributions for financial economics and econometrics. Now what?
I read a very interesting paper by Harris (2017) where he points out some interesting link between market microstructure and the distribution of returns on equity. You can make a good case that the ...
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Hierarchical Risk Parity with allocation constraints?
In the really interesting paper by Marcos Lopez de Prado a variation of risk parity is applied whereby the underlying assets of the portfolio are first split in 'correlation clusters' and the ...
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How to evaluate minimum-variance strategies against perfect information mvp
The minimum variance portfolio should minimize the standard deviation (variance) of the portfolio at time $t+1$. The covariance matrix $\Sigma_{t+1}$ needs to be estimated in order to form the mvp.
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Unwinding a Portfolio
I have a portfolio ${\mathbf P}$ made up of positions $n_i$ in each of $N$ securities, which I'm assuming are jointly normally distributed with means $x_i$, and covariance matrix ${\mathbf M}$.
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Modeling Long-Term Mean Reversion in Asset Returns
Fortunately, for obvious reasons, few applications require simulating asset returns over horizons in excess of 30 years.
Nevertheless, simulations over long horizons are sometimes conducted as part ...
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cvxpy portfolio optimization with risk budgeting
I'm trying to do some portfolio construction in cvxpy in Python:
...
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Comparing MVO with Resampled Efficient Frontier
My question: How can I compare the Resampled Frontier (REF) to the standard MVO frontier when I have been provided with $\mu$, $\Omega$, and don't have access to true future data to test real out of ...
user2921
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What is the intuitive reason why the Gamma and the Theta tend to have the opposite sign?
Quoting Hull's book:
When gamma is positive, theta tends to be negative. The portfolio
declines in value if there is no change in S, but increases in value
if there is a large positive or ...
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How are modern portfolio theory (MPT) and CAPM related?
1. Question
In what sense Capital Asset Pricing Model(CAPM) is related with Modern Portfolio Theory(MPT)?
Why do we need to check whether the current price of assets is overvalued or undervalued ...
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optimal re-balancing strategy with asynchronous alpha signal
You want to construct an optimal portfolio.
Let's say you have an alpha signal that arrives with some period (say quarterly). The alpha signal predicts arithmetic returns one-year ahead. You have ...
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Market Maker portfolio management
I am interested in articles/strategies related to portfolio and inventory management for market makers and to management of order cancellation, updates of order, etc.
Most of the strategies from ...
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Why do low standard deviation stocks tend to have superior future returns?
I've recently stumbled on something that really surprised me. These papers (1, 2) find that past standard deviation of returns is inversely related to future returns. That is, portfolio of low ...
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What to use as portfolio diversification measure?
Suppose that we have a portfolio of $n$ assets.
A perfectly diversified portfolio is one in which each asset has equal weights, i.e. each asset has weight $\frac{1}{n}$. Of course this is usually not ...
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Is there anyone still using Markowitz modern portfolio theory?
I was reading about the MPT (Use standard deviation as risk measure) on "Mathematics for Finance by Marek Capinski". I was just wondering is there anyone actually applying this theory to their ...
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On learning the bayesian approach to portfolio optimization
I am required by my course to write a small paper on the Bayesian approach to portfolio optimization, I am following Applied statistical decision theory [by] Raiffa, Howard. Which can be consulted ...
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How can I use Entropy-pooling of Atillio Meucci to constuct a portfolio?
I am trying to get my hands on Entropy Pooling which was introduced by Meucci in this paper.
As an example, assume I want to construct a portfolio with five stocks and I have my view on CVaR.
How ...
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How to shift amongst asset classes in response to relative value views?
I am designing an asset allocation strategy/fund which invests in four asset classes (via four independent sub-funds):
Domestic equity
International equity
Domestic fixed income
Foreign currencies
...
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How can I simulate portfolio risk (diversification) with a 'Wheel of Fortune' like investment options/returns?
Say I have 6 possible investment options with the following probability of success and the corresponding returns:
...
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How to perform risk budgeting for non-linear portfolios?
I am using this question to compute optimal weights following a risk budgeting approach. The problem is I am using non-linear portfolios (options,equity,fixed income,fx).
What I am looking for is ...
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