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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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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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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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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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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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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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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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 $E$, ...
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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 ...
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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 ...
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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?
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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 (...
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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 ...
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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 ...
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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:
$r_A;_1,_2,_3 = 110, 110, 110$ $p_A = 100$
$r_B;_1,_2,_3 = 100, 50, 40$ $p_B = 70$
$...
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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 ...
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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 ...
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No risk free security?
Imagine market without a risk free security. How is security market line constructed? How is it interpreted?
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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Why the weight vector of 'global minimum variance' the 'eigenvector' with the minimum eigenvalue?
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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 ...
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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:
...
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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 ...
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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 ...
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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 ...
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Geometric Sharpe ratio
I'm computing different metrics for mutual fund performance. I want to use classic Sharpe ratio, but I also got to know there is geometric Sharpe ratio. Unfortunately I didn't find enough info about ...
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Fixed Income Portfolio Optimization
I'm trying to solve for a maximum sharpe ratio portfolio in the fixed income space. To do so, i use CVXPY in python. I use this Paper as reference.
This is my "setup":
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Optimal investment mix of equity and debt in a single company, HY vs IG
What is the optimal mix of equity and debt that an investor should invest in a single company?
If an investor invests in both the debt and equity of a company, they are in effect de-levering the ...
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Why can't I take the Value at Risk "VaR" as a a risk objective in PerformanceAnalytics? (it does work for "ES)
I am currently playing around with PortfolioAnalytics package in R and some data and I am aiming to create different portfolios with different VaR. However, I am struggling first of all, add.objective(...
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Can we get the portfolio size approximation from the PnL? [closed]
Im wondering if we can get the portfolio size approximation, if we have the volatility and -/+ pnl of the portfolio ? Is there a method or a formula ? Example the annual volatility of 3% and daily ...
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Maximum Diversification Strategy without risk free asset
I am currently dealing with the Maximum Diversification Strategy and I am trying to understand the synthetic universe approach from Choueifaty et al.(https://www.tobam.fr/wp-content/uploads/2014/12/...
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Which Maximum Diversification Approach in MATLAB is correct?
I am currently trying to find the portfolio weights of the Maximum Diversification Portfolio and found two approaches which result in different outcomes.
The first one is based on this paper:https://...
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Portfolio volatility - Real life application
Given that a portfolio consists of Stock=USD 30, High-yield bonds(duration=5 years,spread duration=5 years) =USD 40 , Commodity = USD 30.
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Predicting portfolio returns
I suppose there are roughly two approaches to predict portfolio returns.
Either predict the returns of all underlying stocks and aggregate all individual stock predictions, or predict the portfolio ...
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Construct a portfolio of European call options with a certain payoff function
My question is similar to Replicate a Portfolio with Given Payoff but I am not quite sure how to apply this to my problem.
A portfolio of European call options on an asset $S_T$ has a payoff function ...
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Do correlated assets affect the price of a portfolio of derivatives?
I need to compute the value at risk of a given portfolio as an exercise for a class at university but I have trouble understanding how correlated assets affect the price of the portfolio. Could you ...
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Classifying groups of stocks beyond Market Cap/Industry/Sector
I'm monitoring margin values for a portfolio and I want to classify the stocks in my universe using different metrics/information. Just for the sake of making analysis/inferences on the data I have.
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Possible application of Polya's Urn on Portfolio's Investments?
I wanted to find some more information of this topic, but I found very little.
I might be interested in optimizing a stock investment portfolio. Maybe I could use beta or some other common risk ...
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Spot trading: exact mathematical definition of the positions for a portfolio
Let us say that I want to spot trade a portfolio constituted of a pair of two stocks of respective prices (for example in USD)
$S^1_t$ and $S^2_t$, and suppose for example that they co-integrate ...
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calculate portfolio return with one long position and one short position
I was trying to learn how to work out the performance of a portfolio where you are long one stock and short another.
I found an example below. The NAV is calculated by adding the value of the long ...
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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*}
\...
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R: Calculating cumulative return of a portfolio
I've downloaded adjusted closing prices from Yahoo using the quantmod-package, and used that to create a portfolio consisting of 50% ...
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Most significant research articles for practical investors with research perspectives
I am an applied mathematician and recently I have decided to study the portfolio management theory. As a final objective, I want to manage my own portfolio and to try make some money on it using my ...
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Which performance evaluation measure to assess "Connectedness Matrix" based porfolios?
1. Question
Which performance evaluation measure would be best to assess the portfolios built on 'connectedness matrix'? The connectedness matrix is the concept introduced in the academic paper "...
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Regularizers to compute Minimum Variance Portfolio weights
I need to compute the mimimum variance portfolio using different regularizers, to compare the results and use validation methods to find the optimal parameters. Currently my work has been performed ...
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Compare portfolio variance using different regularizers
I'm given a question like below.
Using the 48_Industry_Portfolios_daily dataset: characterize/describe the
dataset and focus on the global minimum variance portfolio. Compare the
portfolio variance ...
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Rebalancing order on trading pairs
I'm working on a program to rebalance my portfolio among a set of crypto assets. Though I'm a bit confused on how to best order the buys in sells among the various pairs.
Consider the following ...
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Correct beta weighted delta options formula?
Is this the correct formula for beta weighted delta: http://www.nishatrades.com/blog/beta-weighted-delta
I've seen this What is the formula for beta weighted delta and gamma? but they seem to be ...
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