Tag Archives: variance partition
Linear constraints with risk fractions
A different sort of generalization of variance partitions. Previously The post “Generalizing risk fractions” described additional (to version 1.04 of Portfolio Probe) ways of dividing the variance among the assets. This post describes the other major addition in the new version. Linear constraints Linear constraints on sectors, industries and countries are quite common. These constrain … Continue reading
Generalizing risk fractions
More ways of constraining the variance attributable to individual assets. Introduction This post describes some additions to the 1.04 version of Portfolio Probe. A beta of that version was released last week. We’ve also added Linux 32-bit and 64-bit as platforms on which Portfolio Probe is for sale. Unfortunately demo and academic versions are still … Continue reading
Risk fraction constraints and volatility
What is the effect on predicted and realized volatility of substituting risk fraction constraints for weight constraints? Previously This post depends on two previous blog posts: “Unproxying weight constraints” “Weight compared to risk fraction” The exact same sets of random portfolios are used in this post that were generated in the second of these. Payoff … Continue reading
Posted in Quant finance, R language, Random portfolios
Tagged risk fraction, S&P 500, variance partition
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Weight compared to risk fraction
How well do asset weight constraints constrain risk? The setup In “Unproxying weight constraints” I claimed that many constraints on asset weights are really a proxy for constraining risk. That is not a problem if weights are a good proxy for risk. So the question is: how good of a proxy are they? To give … Continue reading
Posted in Quant finance, R language, Random portfolios
Tagged risk fraction, S&P 500, variance partition
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Unproxying weight constraints
It is common practice to have portfolio constraints like: wi ≤ 0.05 That is, the weight of each asset can be no more than 5%. Proxy for risk We think that is what we want to do because we are so used to doing it. But why should we care about the weight of assets? … Continue reading
