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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74 views

Full Copula View using Meucci's Full Flexible View

I'm currently setting up an "Investment Framework" that should allow the following steps: Investment Committee (IC) has to decide on probabilities for 4 different market states. I have historical ...
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1answer
421 views

Why use square root of companies market cap in the WLS matrix

When doing a regression based performance attribution I see that people normally use WLS. So that both our independent and dependent variables are multiplied by our WLS matrix, which is a diagonal ...
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126 views

Active vol strategy within a portfolio

Suppose I'd like to have 10 % of my portfolio allocated to "long volatility" by rolling straddles . Obviously going all in on one trade implies significant risk of losing all the money. Does anyone ...
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18 views

Insured Portfolio via call + cash: how much cash?

I am unsure about the quantities to keep in the risky asset, S, and the non-risky asset, M, when constructing an insured portfolio via Call + Cash (rather than Stock + Put). My understanding so far is ...
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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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1answer
95 views

Difference between Risk Premia, Alternative Risk Premia and Factor Investing?

I'm reading about this three concepts but still can't see the difference between the three of them, can someone please explain the main difference between three of them ? Thanks
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106 views

relationship between the expected rate of return and the value measured by the beta factor

Assume that only two companies are listed on an effective capital market: companies A and company B. Capitalization (market value of all shares) of both companies is the same. Expected rate of return ...
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266 views

feasible set if short selling of risk free asset is not allowed

I have 3 risky assets and one risk-free asset. From them I have to determine what the set of portfolios achievable looks like if there is short selling of risk-free asset is not allowed. What does ...
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150 views

is it possible to get minimum variance line having only covariance matrix?

Hey I have covariance matrix: $$C=\begin{pmatrix} 0,01 & 0.01 & 0\\ \\ 0.01 & 0,02 & -0.01 \\ \\ 0 & -0.01 & 0,03 \end{pmatrix}$$ So the variance of porfolio is: $$\...
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60 views

Do the wallet weights with the minimum variance need to be nonzero?

I wonder if we have n risky assets, does the portfolio with the minimum variance always have non-zero weights or can any weight be 0?
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112 views

Statistical significance of mean returns between two portfolios

Suppose I have developed two versions ($A$ and $B$) of a factor model for ranking stocks. Both versions of the model use the same scoring system: stocks are percentile ranked within a given universe ...
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46 views

CAPM Model, is this exercise done correctly?

Hey i need to know if the task is done correctly, please help :) Standard deviation of the rate of return on the market portfolio is equal to $\sigma_{MP}=1,5\%=\frac{15}{1000}$. I have portoflio ...
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131 views

Time varying weights in a portfolio

As I have seen in my portfolio theory class, we define the weights of some assets and quantify the risk and return of the whole portfolio. In this setup, the weights do not change in time. What if the ...
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48 views

Advantage of copula over estimation based on historical data

It seems to me hard to intuitively understand the concept of copulas and their advantages. For example, why would it be better to estimate value at risk of portfolio by modelling its asset returns ...
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1answer
72 views

Hedge ratio with future contract [closed]

I want to buy some stocks and short future contract instead. I wonder whether I can calculate the hedge ratio?
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1answer
107 views

How to model/price the risk of Covid-19 and other pandemics

How would you model and price the risk of Covid-19 pandemic? These large cost low probability events with very little history seems to pose a particular challenge when quantitatively modeling and ...
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2answers
778 views

Hedge backtesting: ex-ante Beta vs observed Beta (is this even possible?)

A global equity portfolio has for objective to outperform a benchmark (MSCI World). I hedge the sensitivity of the portfolio to MSCI World (the beta) so that only the alpha remains unhedged. The ex-...
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32 views

Time and asset weighted rate of return of a portfolio

If I have a portfolio with 3 initial assets on day 1 (say, stock 1 with beginning market value of \$100, stock 2 \$150 and stock 3 \$175) and after 10 days the stock 2 is sold for \$200, how can I ...
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1answer
163 views

R - Portfolio construction based on own calculations, with rebalancing of components

I have used random forest in R to get probabilities for stocks being in a certain class. With those probabilities i would like to construct portfolios containing the 5 stocks with the highest ...
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1answer
158 views

Hedging with interest rate derivatives

This might be a stupid or basic concept for some of you, I'm new to the concept of hedging with interest rate derivatives, I understand how to hedge an equity portfolio but i'm struggling with the ...
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1answer
559 views

FX Swap P&L question

I am currently trying to compute the P&L of a FX swap and to understand it's implications. Let's say when we sell 1M EUR spot eur/usd at 1.08 and at the same time buy a one month month forward ...
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638 views

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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41 views

Black litterman's formula

Hi just curious where can I find the proofs of Black litterman's first term and second term formula? I don't quite know how exactly they derive the entire formula using inverses of matrix. Thanks!
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1answer
291 views

Which riskfree rate to use for Maximum Sharpe Ratio Portfolio?

I am conducting out of sample backtests of the MV framework. But how exactly do I derive the Maximum Sharpe Ratio portfolio for this? The standard forumula of the Sharpe Ratio is given by: $$\frac{(...
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1answer
84 views

Which returns to use for portfolio optimiaztion?

On the base of which returns do I have to derive optimal portfolio weights of an investment strategy? More specifically, do I have to use the excess returns or just the normal returns of the ...
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1answer
145 views

ESG Style Analysis

Hi all and thank you in advance. Do you think that implementing a style analysis on ESG equity portfolios is feasible? When I mean style analysis I refer to the seminal paper of Sharpe (1992) but I ...
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1answer
238 views

Using Implied Volatility for Portfolio Optimization

Hello I am interested in portfolio optimization . Previously I when I have done portfolio optimization I would take the historical returns of a stock and use them to perform a mean variance ...
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1answer
312 views

Markowitz portfolio in reality

I am in academia and begin to work on topics including portfolio optimization. I just read lots of paper discussing different extensions to the Markowitz approach, given different (possibly ...
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28 views

Portfolio construction with volume based bars

In the book Efficiently Inefficient, Lasse Pedersen interviews Myron Scholes: LHP: Why do spreads tend to widen during some periods of stress? MS: Well, capital becomes more scarce, both physical ...
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2answers
1k 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 ...
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880 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 ...
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95 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, $R_{i}$...
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168 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 ...
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243 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 ...
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149 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 ...
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302 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 ...
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1answer
87 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?
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1answer
857 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 ...
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1answer
766 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 ...
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1answer
74 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 ...
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94 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 ...
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1answer
289 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 ...
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308 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: ...
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2answers
256 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?
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122 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 ...
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1answer
90 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
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55 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, ...
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766 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 ...
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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. ...
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47 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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