# Tag Info

## New answers tagged portfolio-optimization

1

Yes all you have to do is estimate the Black Litterman covariance matrix that includes investor views using a shrinkage estimator. Covariance shrinkage like Ledoit Wolf is an old technique, however, that has been outperformed by the denoised or detoned covariance matrix estimated by random matrix theory, as well as the nested clustered optimization (NCO) ...

3

"Money management" is the art or business of managing money on behalf of an investor (individual or institutions such as pension fund, college endowment, etc.). Money managers usually organize their work by making decisions in a hierarchical fashion on 3 different levels: Strategic Asset Allocation (highest level, few decisions - infrequently ...

2

$\lambda$ is independent of the maximum sharpe ratio. The maximum sharpe ratio portfolio will give you a combination of the risk free asset and the tangency portfolio. Then your risk aversion just makes you choose the combination between these two assets. See picture below. The blue line is the efficient frontier with short-sales allowed. The red-curve is ...

0

I quote a very famous paper from De Prado: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2708678 In general, unsupervised learning is a very powerful tool in asset allocation especially with regards to exploring deep unsupervised relations among different assets (i.e. sort of correlations).

2

I can think of two. First up is the naive Bayesian porfolio, ie run equal weights in the absence of any priors about any of returns, their volatility, correlations, or return-persistence. But then think ahead to the next step in the game. What do you do in 1,3,12 months time after the weights have evolved in line with realised performance? You could let ...

4

The "hedging theory of investment" (which I first heard about from R. C. Merton) says you should invest not for returns but to hedge your liabilities. LDI (Liability Driven Investment) is one name for it. So for example a pension fund should hedge pension liabilities. A university endowment should hedge the cost of producing education, which might entail ...

3

For some clarification, what assets are you allocating and what is the objective? Does it include stocks, bonds, real estate, etc.? Do you care about returns, volatility, drawdown, etc? Assuming the answers are yes and you are concerned with what is usually referred to as asset allocation, I would next ask why you want to completely ignore historical ...

1

It does not matter whether you measure covariance of two portfolios or two securities, the formula is the same. Simply instead of returns and expected values for securities, put those for portfolios.

1

As a Polya urn is often referred to as the rich get richer, it maybe possible to use his urn to get richer. It is known that these urns can be related to the Dirichlet-multinomial distribution. That being the case, i suggest looking at this link, http://jmlr.org/papers/volume18/10-231/10-231.pdf, to see if it will answer your question. It too deals with ...

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