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There are some subtleties / difficulties. Implied volatiliy, which depends on the strike of a vanilla option, is only a forward looking measure in the sense that it can be regarded as the risk-neutral expectation of break-even delta-hedging profit and loss of a vanilla option of strike $K$ which is delta hedged to expiration using a constant volatility. If ...


Let’s put it this way. Classic MV is still used, but its shortcomings are universally appreciated. In its favour, the process is logical, conceptually intuitive, and non-quants easily understand it. But the optimisation produces some very unintuitive results, no different to multicollinearity effects in regression analysis. That’s a harder one for the non-...


You can think of it as the number of trading positions on Uncorrelated instruments, in a year. So backtest your strategy in some uncorrelated instruments for a year, and sum their positions count.


Portfolio beta is a function of market vol, portfolio vol and correlation between market and portfolio; so correlation is indeed the only free variable. (But if you have complete control over the portfolio-construction process, you might as well target beta and then scale the weights so that you meet your volatility target.) To control correlation, you'll ...


Your problem formulation is wrong, you must use the Charnes and Cooper transformation. This means that your constraint (mu-mu0)@y==1 must be (mu-mu0)@y==k and w=y/k, which implies that k==cp.sum(y).

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