Category Archives: optimization
Another comparison of heuristic optimizers
A herd of heuristic algorithms is compared using a portfolio optimization. Previously “A comparison of some heuristic optimization methods” used two simple and tiny portfolio optimization problems to compare a number of optimization functions in the R language. This post expands upon that by using a portfolio optimization problem that is of a realistic size … Continue reading
A comparison of some heuristic optimization methods
A simple portfolio optimization problem is used to look at several R functions that use randomness in various ways to do optimization. Orientation Some optimization problems are really hard. In these cases sometimes the best approach is to use randomness to get an approximate answer. Once you decide to go down this route, you need … Continue reading
Alpha alignment
An explanation of alpha factor alignment in portfolio optimization, and a look at the spectrum of views on it. Venue FactSet recently hosted an event that included a panel of representatives from several risk model vendors. The first question thrown at the panel was about alpha alignment. The opinions varied widely. There was positive correlation … Continue reading
Posted in optimization, Quant finance
Tagged alpha alignment, alpha eating, factor alignment
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The top 7 portfolio optimization problems
Stumbling blocks on the trek from theory to practical optimization in fund management. Problem 1: portfolio optimization is too hard If you are using a spreadsheet, then this is indeed a problem. Spreadsheets are dangerous when given a complex task. Portfolio optimization qualifies as complex in this context (complex in data requirements). If you are … Continue reading
Portfolio optimization inside out
A possible way to search for constraints that improve optimization. The perspective The usual way of thinking about portfolio optimization is to first consider the utility and then restrict to where the constraints are satisfied. A perfectly reasonable view. We use random portfolios to get a different point of view: first ensure that the constraints … Continue reading
Introduction to “Numerical Methods and Optimization in Finance”
The book is by Manfred Gilli, Dietmar Maringer and Enrico Schumann. I haven’t actually seen the book, so my judgement of it is mainly by the cover (and knowing the first two authors). The parts of the book closest to my heart are optimization, particularly portfolio optimization, and particularly particularly portfolio optimization via heuristic algorithms. … Continue reading
A different take on random portfolios and optimization
In which random portfolios are used as the vehicle for portfolio optimization. The paper The author is William Shaw. The paper goes by the succinct title of “Portfolio Optimization for VAR, CVaR, Omega and Utility with General Return Distributions: A Monte Carlo Approach for Long-Only and Bounded Short Portfolios with Optional Robustness and a Simplified … Continue reading
Posted in optimization, Portfolio Probe, Random portfolios
Tagged portfolio optimization
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Feeding a greedy algorithm
The idea of a greedy algorithm (for optimization) is that you do as best you can locally and you don’t worry about the big picture. For some problems a greedy algorithm is guaranteed to get you to the global optimum. In other cases, no. An intuitive example Suppose you are walking and you want to … Continue reading
