Questions tagged [portfolio-selection]

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How good is the inverse-volatility portfolio?

Heuristic portfolio construction techniques include the equally-weighted portfolio (1/N) and the inverse volatility portfolio (IVP), which is based on the low-volatility effect. They can be assembled ...
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110 views

Optimize an equity portfolio for the four central moments: problem formulation

Basically i am confused as to which formula to use for portfolio skew and kurtosis and how to use the same in the optimization problem. I would also like to know the options available regarding the ...
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83 views

Jacobs and Levy: Enhanced Active Equity Strategies

Hello to everyone I am writing because I am having a bit of tough time figuring out how to replicate the constraints for a Portfolio Optimization using the set up from Jacobs & Levy 2006 - '...
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0answers
80 views

What is the state of the art in Capital Growth Theory?

I recently read Online Portfolio Selection: A Survey by Li & Hoi. I rarely hear OPS talked about in the quantitative finance community, aside from different types of mean-variance optimization. So ...
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186 views

Sharpe Ratio for loans

I am trying to calculate the sharpe ratio for a set of loans. These loans have already matured and I know if they were good or not: grades are the different grades of the loans. interest rate is the ...
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76 views

OLPS in real conditions

The Online Portfolio Selection problem has been extensively researched over the years, and various models have been implemented in open-source projects on GitHub. However the theoretical frameworks of ...
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54 views

Calendar time portfolio construction

I am writing my master's thesis about analyst star-rankings and whether their recommendations have investment value. For these purposes I am trying to construct calendar time portfolios as it was made ...
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0answers
97 views

Calculating portfolio weights for Black-Litterman model

I am attempting to construct a portfolio using the step by step Black-Litterman model. My idea is to have a portfolio of, say 10 ETF's (equity based) in one sector and then add some uncorrelated asset ...
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48 views

Selecting the best characteristic portfolio per rebalance date

An investor typically decides a portfolio objective and sticks with that objective for every rebalance date in the portfolio's life. Common characteristic portfolios that the investor chooses are: ...
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105 views

Can simple risk management outperform portfolio optimization like this, or is there most likely an error?

I am using a simulation approach to compare the performances achievable by simple risk management and portfolio optimization for portfolio selection. My problem is that my results indicate that simple ...
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99 views

Volatility of stocks

I want to build a theoretical Portfolio with markowitz optimization for a course in University. The task is to build a Portfolio with low risk. So i want to do a CPPI strategy. Now the stock part of ...
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108 views

How to understand quadratic finance or practice of Value-at -Risk(VaR)

We define the following notions for a jointly normally distributed random vector $P=(P_1,...,P_n)$ with f the density function. $$\mu=\int_{-\infty}^{\infty}(x_i-\mu_i)f_i(x_i)dx_i$$ $$\sigma^2_{ij}=...
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4k views

Problem with determining weights in tangency portfolio (2 risky assets)

I use the following well known formula in order to determine the weight of asset i in the tangency portfolio (in the case of two risky assets): $w_{i,T}=\frac{\sigma[r_2]^2E[R_1]-\sigma[r_1,r_2]E[R_2]...
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61 views

Quantatively identifying stocks to short when overall market starts to roll-over

Lets say we are seeing the market starting to top right now. Obviously, this leads to positioning on the short side. My issue is that I have a wide choice of stocks to short (overwhelmed by choice). ...
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34 views

Motivation/intuition behind the following portfolio selection problem

I am developing a Reinforcement learning algorithm for the optimal portfolio selection, using stochastic control approach. I have a market with risky and risk free assets. However becouse of some ...
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63 views

Portofolio selection by aggregating online expert advice

My question is about the following 2020 article : Universal portfolio selection strategy by aggregating online expert advice. I am at the moment trying to understand the underlying logic of the ...
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41 views

Is this efficient frontier graph reasonable?

Hi. The above image is taken from https://www.newfrontieradvisors.com/media/1166/optimization-with-non-normal-resampling.pdf. Is this a reasonable chart? The 4 different methods give 4 non-overlapping ...
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52 views

Index to track my portfolio of all ETFs

I have the following portfolio of all ETFs: I am attempting to apply Black Litterman and on the step of calculating market weights. I have the following questions: How can I define what index to use ...
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41 views

Apply dependent double qcut (à la Fama-French) in python

Dear StackOverflow community, I want to iterate a double qcut function, to create a dependent double sorting procedure. This procedure is employed by Fama & French (1993) to form quintiles ...
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57 views

Maximum expected return portfolio: Lagrangean derivation of closed-form analytical solution

\begin{align} \arg \min_w \enspace & -w^\top \mu \\ \mathrm{s.t.} \enspace & 1_N^\top w = 1 \\ & w_i \geq 0 \enspace \forall i=1,\dots, N \end{align} is the optimization problem for ...
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29 views

Difference between alpha and ROI ratios?

Given the intuitive definition of "alpha" as the percentage advantage of a portfolio over its benchmark market, what is the difference between ratio (%) of ROIs and alpha? What I mean by &...
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42 views

Symbol for the feasible set of portfolios in mean-variance analysis?

When we optimize some mean-variance efficient portfolio, it lies on the efficient frontier (blue line) which is considered superior to the feasible set of portfolios. The feasible set (red dots), on ...
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43 views

Creating daily rebalancing stock portfolios based on analyst recommendations

I am doing research on analyst recommendations on Finnish stock market, using Can Investors Profit from the Prophets? Security Analyst Recommendations and Stock Returns by Barber etc. as reference ...
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34 views

How to determine incorporated funds from the CFI

I am making a model for the acquisition of financial instruments, and it is sometimes important (for legal or tax reasons) to be able to determine whether an investment fund is incorporated (SICAV or ...
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425 views

How to calculate an option porfolio cost and payoff function?

There are call and put options on the same underlying asset, with the same expiry, $T$, and with strikes $K_c=(k_c^1, k_c^2, \ldots, k_c^m)$ and $K_p=(k_p^1, k_p^2, \ldots, k_p^m)$, $S_t$ is a price ...
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1answer
111 views

Including a score or a rank in portfolio-optimization

I have gathered a lot of experience using min-var optimization of the form $$ w' \Sigma w \rightarrow Min, $$ where $w$ are the weights of the assets and $\Sigma$ is the covariance matrix. Of course ...