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Applications Of Optimal Portfolio Management

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Applications Of Optimal Portfolio Management

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Author : Dimitrios Bisias
language : en
Publisher:
Release Date : 2015

Applications Of Optimal Portfolio Management written by Dimitrios Bisias and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.

This thesis revolves around applications of optimal portfolio theory. In the first essay, we study the optimal portfolio allocation among convergence trades and mean reversion trading strategies for a risk averse investor who faces Value-at-Risk and collateral constraints with and without fear of model misspecification. We investigate the properties of the optimal trading strategy, when the investor fully trusts his model dynamics. Subsequently, we investigate how the optimal trading strategy of the investor changes when he mistrusts the model. In particular, we assume that the investor believes that the data will come from an unknown member of a set of unspecified alternative models near his approximating model. The investor believes that his model is a pretty good approximation in the sense that the relative entropy of the alternative models with respect to his nominal model is small. Concern about model misspecification leads the investor to choose a robust optimal portfolio allocation that works well over that set of alternative models. In the second essay, we study how portfolio theory can be used as a framework for making biomedical funding allocation decisions focusing on the National Institutes of Health (NIH). Prioritizing research efforts is analogous to managing an investment portfolio. In both cases, there are competing opportunities to invest limited resources, and expected returns, risk, correlations, and the cost of lost opportunities are important factors in determining the return of those investments. Can we apply portfolio theory as a systematic framework of making biomedical funding allocation decisions? Does NIH manage its research risk in an efficient way? What are the challenges and limitations of portfolio theory as a way of making biomedical funding allocation decisions? Finally in the third essay, we investigate how risk constraints in portfolio optimization and fear of model misspecification affect the statistical properties of the market returns. Risk sensitive regulation has become the cornerstone of international financial regulations. How does this kind of regulation affect the statistical properties of the financial market? Does it affect the risk premium of the market? What about the volatility or the liquidity of the market?

Quantitative Equity Portfolio Management

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Author : Edward E. Qian
language : en
Publisher: CRC Press
Release Date : 2007-05-11

Quantitative Equity Portfolio Management written by Edward E. Qian and has been published by CRC Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007-05-11 with Business & Economics categories.

Quantitative equity portfolio management combines theories and advanced techniques from several disciplines, including financial economics, accounting, mathematics, and operational research. While many texts are devoted to these disciplines, few deal with quantitative equity investing in a systematic and mathematical framework that is suitable for

Handbook Of Portfolio Construction

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Author : John B. Guerard, Jr.
language : en
Publisher: Springer Science & Business Media
Release Date : 2009-12-12

Handbook Of Portfolio Construction written by John B. Guerard, Jr. and has been published by Springer Science & Business Media this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009-12-12 with Business & Economics categories.

Portfolio construction is fundamental to the investment management process. In the 1950s, Harry Markowitz demonstrated the benefits of efficient diversification by formulating a mathematical program for generating the "efficient frontier" to summarize optimal trade-offs between expected return and risk. The Markowitz framework continues to be used as a basis for both practical portfolio construction and emerging research in financial economics. Such concepts as the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT), for example, provide the foundation for setting benchmarks, for predicting returns and risk, and for performance measurement. This volume showcases original essays by some of today’s most prominent academics and practitioners in the field on the contemporary application of Markowitz techniques. Covering a wide spectrum of topics, including portfolio selection, data mining tests, and multi-factor risk models, the book presents a comprehensive approach to portfolio construction tools, models, frameworks, and analyses, with both practical and theoretical implications.

Applications Of Forward Performance Processes In Dynamic Optimal Portfolio Management

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Author : Xiao Han
language : en
Publisher:
Release Date : 2017

Applications Of Forward Performance Processes In Dynamic Optimal Portfolio Management written by Xiao Han and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.

The classical optimal investment models are cast in a finite or infinite horizon setting, assuming an a priori choice of a market model (or a family of models) as well as a priori choice of a utility function of terminal wealth and/or intermediate consumption. Once these choices are made, namely, the horizon, the model and the risk preferences, stochastic optimization technique yield the maximal expected utility (value function) and the optimal policies wither through the Hamilton-Jacobi-Bellman equation in Makovian models or, more generally, via duality in semi-martingale models. A fundamental property of the solution is time-consistency, which follows from the Dynamic Programming Principle (DPP). This principle provides the intuitively pleasing interpretation of the value function as the intermediate (indirect) utility. It also states that the value function is a martingale along the optimal wealth trajectory and a super-martingale along every admissible one. These properties provide a time-consistent framework of the solutions, which ``pastes" naturally one investment period to the next. Despite its mathematical sophistication, the classical expected utility framework cannot accommodate model revision, nor horizon flexibility nor adaptation of risk preferences, if one desires to retain time-consistency. Indeed, the classical formulation is by nature ``backwards" in time and, thus, it does not allow any "forward in time" changes. For example, on-line learning, which typically occurs in a non-anticipated way, cannot be implemented in the classical setting, simply because the latter evolves backwards while the former progresses forward in time. To alleviate some of these limitations while, at the same time, preserving the time-consistency property, Musiela and Zariphopoulou proposed an alternative criterion, the so-called forward performance process. This process satisfies the DPP forward in time, and generalizes the classical expected utility. For a large family of cases, forward performance processes have been explicitly constructed for general Ito-diffusion markets. While there has already been substantial mathematical work on this criterion, concrete applications to applied portfolio management are lacking. In this thesis, the aim is to focus on applied aspects of the forward performance approach and build meaningful connections with practical portfolio management. The following topics are being studied. Chapter 2 starts with providing an intuitive characterization of the underlying performance measure and the associated risk tolerance process, which are the most fundamental ingredients of the forward approach. It also provides a novel decomposition of the initial condition and, in turn, its inter-temporal preservation as the market evolves. The main steps involve a system of stochastic differential equations modeling various stochastic sensitivities and risk metrics. Chapter 3 focuses on the applications of the above results to lifecycle portfolio management. Investors are firstly classified by their individual risk preference generating measures and, in turn, mapped to different groups that are consistent with the popular practice of age-based de-leveraging. The inverse problem is also studied, namely, how to infer the individual investor-type measure from observed investment behavior. Chapter 4 provides applications of the forward performance to the classical problem of mean-variance analysis. It examines how sequential investment periods can be ``pasted together" in a time-consistent manner from one evaluation period to the next. This is done by mapping the mean-variance to a family of forward quadratic performances with appropriate stochastic and path-dependent coefficients. Quantitative comparisons with the classical approach are provided for a class of market settings, which demonstrate the superiority and flexibility of the forward approach.

Robust Equity Portfolio Management

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Author : Woo Chang Kim
language : en
Publisher: John Wiley & Sons
Release Date : 2015-11-25

Robust Equity Portfolio Management written by Woo Chang Kim and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-11-25 with Business & Economics categories.

A comprehensive portfolio optimization guide, with provided MATLAB code Robust Equity Portfolio Management + Website offers the most comprehensive coverage available in this burgeoning field. Beginning with the fundamentals before moving into advanced techniques, this book provides useful coverage for both beginners and advanced readers. MATLAB code is provided to allow readers of all levels to begin implementing robust models immediately, with detailed explanations and applications in the equity market included to help you grasp the real-world use of each technique. The discussion includes the most up-to-date thinking and cutting-edge methods, including a much-needed alternative to the traditional Markowitz mean-variance model. Unparalleled in depth and breadth, this book is an invaluable reference for all risk managers, portfolio managers, and analysts. Portfolio construction models originating from the standard Markowitz mean-variance model have a high input sensitivity that threatens optimization, spawning a flurry of research into new analytic techniques. This book covers the latest developments along with the basics, to give you a truly comprehensive understanding backed by a robust, practical skill set. Get up to speed on the latest developments in portfolio optimization Implement robust models using provided MATLAB code Learn advanced optimization methods with equity portfolio applications Understand the formulations, performances, and properties of robust portfolios The Markowitz mean-variance model remains the standard framework for portfolio optimization, but the interest in—and need for—an alternative is rapidly increasing. Resolving the sensitivity issue and dramatically reducing portfolio risk is a major focus of today's portfolio manager. Robust Equity Portfolio Management + Website provides a viable alternative framework, and the hard skills to implement any optimization method.

Efficient Asset Management

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Author : Richard O. Michaud
language : en
Publisher: Oxford University Press
Release Date : 2008-03-03

Efficient Asset Management written by Richard O. Michaud and has been published by Oxford University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008-03-03 with Business & Economics categories.

In spite of theoretical benefits, Markowitz mean-variance (MV) optimized portfolios often fail to meet practical investment goals of marketability, usability, and performance, prompting many investors to seek simpler alternatives. Financial experts Richard and Robert Michaud demonstrate that the limitations of MV optimization are not the result of conceptual flaws in Markowitz theory but unrealistic representation of investment information. What is missing is a realistic treatment of estimation error in the optimization and rebalancing process. The text provides a non-technical review of classical Markowitz optimization and traditional objections. The authors demonstrate that in practice the single most important limitation of MV optimization is oversensitivity to estimation error. Portfolio optimization requires a modern statistical perspective. Efficient Asset Management, Second Edition uses Monte Carlo resampling to address information uncertainty and define Resampled Efficiency (RE) technology. RE optimized portfolios represent a new definition of portfolio optimality that is more investment intuitive, robust, and provably investment effective. RE rebalancing provides the first rigorous portfolio trading, monitoring, and asset importance rules, avoiding widespread ad hoc methods in current practice. The Second Edition resolves several open issues and misunderstandings that have emerged since the original edition. The new edition includes new proofs of effectiveness, substantial revisions of statistical estimation, extensive discussion of long-short optimization, and new tools for dealing with estimation error in applications and enhancing computational efficiency. RE optimization is shown to be a Bayesian-based generalization and enhancement of Markowitz's solution. RE technology corrects many current practices that may adversely impact the investment value of trillions of dollars under current asset management. RE optimization technology may also be useful in other financial optimizations and more generally in multivariate estimation contexts of information uncertainty with Bayesian linear constraints. Michaud and Michaud's new book includes numerous additional proposals to enhance investment value including Stein and Bayesian methods for improved input estimation, the use of portfolio priors, and an economic perspective for asset-liability optimization. Applications include investment policy, asset allocation, and equity portfolio optimization. A simple global asset allocation problem illustrates portfolio optimization techniques. A final chapter includes practical advice for avoiding simple portfolio design errors. With its important implications for investment practice, Efficient Asset Management 's highly intuitive yet rigorous approach to defining optimal portfolios will appeal to investment management executives, consultants, brokers, and anyone seeking to stay abreast of current investment technology. Through practical examples and illustrations, Michaud and Michaud update the practice of optimization for modern investment management.

Robust Portfolio Optimization And Management

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Author : Frank J. Fabozzi
language : en
Publisher: John Wiley & Sons
Release Date : 2007-04-27

Robust Portfolio Optimization And Management written by Frank J. Fabozzi and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007-04-27 with Business & Economics categories.

Praise for Robust Portfolio Optimization and Management "In the half century since Harry Markowitz introduced his elegant theory for selecting portfolios, investors and scholars have extended and refined its application to a wide range of real-world problems, culminating in the contents of this masterful book. Fabozzi, Kolm, Pachamanova, and Focardi deserve high praise for producing a technically rigorous yet remarkably accessible guide to the latest advances in portfolio construction." --Mark Kritzman, President and CEO, Windham Capital Management, LLC "The topic of robust optimization (RO) has become 'hot' over the past several years, especially in real-world financial applications. This interest has been sparked, in part, by practitioners who implemented classical portfolio models for asset allocation without considering estimation and model robustness a part of their overall allocation methodology, and experienced poor performance. Anyone interested in these developments ought to own a copy of this book. The authors cover the recent developments of the RO area in an intuitive, easy-to-read manner, provide numerous examples, and discuss practical considerations. I highly recommend this book to finance professionals and students alike." --John M. Mulvey, Professor of Operations Research and Financial Engineering, Princeton University

Metaheuristic Approaches To Portfolio Optimization

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Author : Ray, Jhuma
language : en
Publisher: IGI Global
Release Date : 2019-06-22

Metaheuristic Approaches To Portfolio Optimization written by Ray, Jhuma and has been published by IGI Global this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-06-22 with Business & Economics categories.

Control of an impartial balance between risks and returns has become important for investors, and having a combination of financial instruments within a portfolio is an advantage. Portfolio management has thus become very important for reaching a resolution in high-risk investment opportunities and addressing the risk-reward tradeoff by maximizing returns and minimizing risks within a given investment period for a variety of assets. Metaheuristic Approaches to Portfolio Optimization is an essential reference source that examines the proper selection of financial instruments in a financial portfolio management scenario in terms of metaheuristic approaches. It also explores common measures used for the evaluation of risks/returns of portfolios in real-life situations. Featuring research on topics such as closed-end funds, asset allocation, and risk-return paradigm, this book is ideally designed for investors, financial professionals, money managers, accountants, students, professionals, and researchers.

Portfolio Management With Heuristic Optimization

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Author : Dietmar G. Maringer
language : en
Publisher: Springer Science & Business Media
Release Date : 2006-07-02

Portfolio Management With Heuristic Optimization written by Dietmar G. Maringer and has been published by Springer Science & Business Media this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006-07-02 with Business & Economics categories.

Portfolio Management with Heuristic Optimization consist of two parts. The first part (Foundations) deals with the foundations of portfolio optimization, its assumptions, approaches and the limitations when "traditional" optimization techniques are to be applied. In addition, the basic concepts of several heuristic optimization techniques are presented along with examples of how to implement them for financial optimization problems. The second part (Applications and Contributions) consists of five chapters, covering different problems in financial optimization: the effects of (linear, proportional and combined) transaction costs together with integer constraints and limitations on the initital endowment to be invested; the diversification in small portfolios; the effect of cardinality constraints on the Markowitz efficient line; the effects (and hidden risks) of Value-at-Risk when used the relevant risk constraint; the problem factor selection for the Arbitrage Pricing Theory.

Robust Portfolio Optimization And Management

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Author : Frank J. Fabozzi
language : en
Publisher: John Wiley & Sons
Release Date : 2007-06-04

Applications Of Optimal Portfolio Management

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