David Nehme
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Normality assumption in Sharpe ratio
17 votes

You are correct that you can compute Sharpe ratios on portfolios with any return distribution. The issue is comparing Sharpe ratio's of non-normally distributed portfolios (which in reality is almost ...

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how to choose top n assets?
9 votes

If $Q$ is your covariance matrix, and $r$ is a vector of your expected returns, then the maximum Sharpe ratio is given by the following math program. $${\rm maximize} \frac{r^t x}{\sqrt{0.5 x^t Q x}}$$...

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Minimum Variance and Minimum Tracking Error portfolio as second order cone program
Accepted answer
8 votes

Without the discrete constraints, the minimum tracking error/variance problem is a quadratic program. If you constrain the tracking error, you have a convex quadratically-constrained problem which is ...

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Portfolio optimisation with VaR or CVaR constraints using linear programming
8 votes

The VaR constraint is convex and quadratic and can be handled with any solver supports quadratic constraints, like Guribi, cplex (from IBM) or xpress (from FICO). The CVaR can be formulated as a ...

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What are some examples of Compound Poisson processes in insurance?
4 votes

An insurer might model the filing of claims as a Poisson process, but the cumulative amount of the claims as a compound Poisson process. As an example, suppose a company has issued a large large ...

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What is the meaning of subadditivity in a risk measure?
3 votes

Rewriting the condition as $$\rho\left({X_1+X_2 \over 2}\right) \leq {\rho(X_1) + \rho(X_2) \over 2}$$ You can interpret it as a portfolio containing the average holdings of two other portfolios ...

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What is the difference between Option Adjusted Spread (OAS) and Z-spread?
3 votes

The z-spread and OAS both are measures of the difference in price between an ABS and a zero-risk bond. The OAS and z-spread are not spreads that a bond with and without options should require, they ...

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Calculate the "ten year zero rate" given two bonds with two prices
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2 votes

The way you are trying to solve these equations makes assumptions about the rates less than 10 years and therefore the shape of the yield curve. \$90 is the value of 8% coupons plus a 10-year zero-...

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Portfolio Optimization using S&P Universes
2 votes

You are asking two different questions: what would be the model result, and what would be the actual performance of an actual portfolio. The optimal model results with the S&P 1500 will be at ...

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what is considered material information?
Accepted answer
1 votes

The CFA institute defines "material" information as information that would change the price of a security if it was released or that a reasonable person would want to know before making an investment ...

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How to calculate cumulative loss from two factors that have negative correlation?
1 votes

If the two factors are equally weighted, then the expected loss of the portfolio is just the average of the two expected losses. The expected value of the sum of random variables is always the sum of ...

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