Tag Archives: portfolio optimization
The portfolio optimization higher-moment credo
The question of skewness and kurtosis in portfolio optimization. Previously Problem 4 of “The top 7 portfolio optimization problems” concerns the use of higher moments. “Further adventures with higher moments” is the most recent in a series of posts on the efficacy of higher moments in optimization. This set includes the observation that “trade selection” … Continue reading
Posted in Quant finance
Tagged kurtosis, portfolio optimisation, portfolio optimization, skewness, trade selection
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The efficacy of higher moments in portfolio optimization
On Monday I gave a talk at the London Quant Group entitled “Exploring the efficacy of higher moments in portfolio optimisation”. A substantial number of people showed up, and they taught me quite a lot about the subject. So it seems to have been successful. There are now annotated slides available. The slides point towards … Continue reading
Posted in Quant finance
Tagged kurtosis, portfolio optimisation, portfolio optimization, skewness
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Predicted correlations and portfolio optimization
What effect do predicted correlations have when optimizing trades? Background A concern about optimization that is not one of “The top 7 portfolio optimization problems” is that correlations spike during a crisis which is when you most want optimization to work. This post looks at a small piece of that question. It wonders if increasing predicted … Continue reading
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
Three talks from CFE
The Computational and Financial Econometrics conference was just held in London. Here are three talks from the large menu. Lars Helge Hass The objective is to find a way to do an asset allocation optimization that includes private equity. A problem of course is that private equity is seriously opaque. To highlight that, using one … Continue reading
Posted in Quant finance
Tagged portfolio optimization, regime switching model, variance compression
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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
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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Highlights of the London Quant Group Technology Day
A summary of the high points of the day. Factor models and optimization Three of the talks formed a theme: factor models of variance — especially as applied to portfolio optimization. The basic problem is that variance matrices are created with error. A variance matrix is a key input to (some) portfolio optimizations. The optimizer … Continue reading
Attilio Meucci starts praying
Attilio Meucci has written “The Prayer” which gives a ten-step process of quantitative analysis of the profit and loss stream. The paper is nicely laid out. Each step includes at least one “key concept” box. These give a clear, concise statement of a main idea. These allow you to quickly get the thrust without needing … Continue reading
Ancient portfolio theory
Before we get to the meat of the subject, I just have to comment on the “modern” of Modern Portfolio Theory. Figure 1: Modern telephone switch Figure 1 shows us a modern telephone switch. As a bonus we get to see some modern women. Why don’t we have “portfolio theory” instead of “Modern Portfolio Theory”? … Continue reading
