Author: Wolfgang Bessler Publisher: ISBN: Category : Languages : en Pages : 48
Book Description
The Black-Litterman model aims to enhance asset allocation decisions by overcoming the problems of mean-variance portfolio optimization. We propose a sample based version of the Black-Litterman model and implement it on a multi-asset portfolio consisting of global stocks, bonds, and commodity indices, covering the period from January 1993 to December 2011. We test its out-of-sample performance relative to other asset allocation models and find that Black-Litterman optimized portfolios significantly outperform naïve-diversified portfolios (1/N-rule and strategic weights), and consistently perform better than mean-variance, Bayes-Stein, and minimum-variance strategies in terms of out-of-sample Sharpe ratios, even after controlling for different levels of risk aversion, investment constraints, and transaction costs. The BL model generates portfolios with lower risk, less extreme asset allocations, and higher diversification across asset classes. Sensitivity analyses indicate that these advantages are due to more stable mixed return estimates that incorporate the reliability of return predictions, smaller estimation errors, and lower turnover.
Author: Richard O. Michaud Publisher: Oxford University Press ISBN: 0199887195 Category : Business & Economics Languages : en Pages : 207
Book Description
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.
Author: Frank J. Fabozzi Publisher: John Wiley & Sons ISBN: 0470164891 Category : Business & Economics Languages : en Pages : 513
Book Description
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
Author: William Kinlaw Publisher: John Wiley & Sons ISBN: 1119402425 Category : Business & Economics Languages : en Pages : 259
Book Description
Since the formalization of asset allocation in 1952 with the publication of Portfolio Selection by Harry Markowitz, there have been great strides made to enhance the application of this groundbreaking theory. However, progress has been uneven. It has been punctuated with instances of misleading research, which has contributed to the stubborn persistence of certain fallacies about asset allocation. A Practitioner's Guide to Asset Allocation fills a void in the literature by offering a hands-on resource that describes the many important innovations that address key challenges to asset allocation and dispels common fallacies about asset allocation. The authors cover the fundamentals of asset allocation, including a discussion of the attributes that qualify a group of securities as an asset class and a detailed description of the conventional application of mean-variance analysis to asset allocation.. The authors review a number of common fallacies about asset allocation and dispel these misconceptions with logic or hard evidence. The fallacies debunked include such notions as: asset allocation determines more than 90% of investment performance; time diversifies risk; optimization is hypersensitive to estimation error; factors provide greater diversification than assets and are more effective at reducing noise; and that equally weighted portfolios perform more reliably out of sample than optimized portfolios. A Practitioner's Guide to Asset Allocation also explores the innovations that address key challenges to asset allocation and presents an alternative optimization procedure to address the idea that some investors have complex preferences and returns may not be elliptically distributed. Among the challenges highlighted, the authors explain how to overcome inefficiencies that result from constraints by expanding the optimization objective function to incorporate absolute and relative goals simultaneously. The text also explores the challenge of currency risk, describes how to use shadow assets and liabilities to unify liquidity with expected return and risk, and shows how to evaluate alternative asset mixes by assessing exposure to loss throughout the investment horizon based on regime-dependent risk. This practical text contains an illustrative example of asset allocation which is used to demonstrate the impact of the innovations described throughout the book. In addition, the book includes supplemental material that summarizes the key takeaways and includes information on relevant statistical and theoretical concepts, as well as a comprehensive glossary of terms.
Author: Woo Chang Kim Publisher: John Wiley & Sons ISBN: 111879737X Category : Business & Economics Languages : en Pages : 256
Book Description
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.
Author: Jean-Luc Prigent Publisher: CRC Press ISBN: 142001093X Category : Business & Economics Languages : en Pages : 451
Book Description
In answer to the intense development of new financial products and the increasing complexity of portfolio management theory, Portfolio Optimization and Performance Analysis offers a solid grounding in modern portfolio theory. The book presents both standard and novel results on the axiomatics of the individual choice in an uncertain framework, cont
Author: Söhnke M. Bartram Publisher: CFA Institute Research Foundation ISBN: 195292703X Category : Business & Economics Languages : en Pages : 95
Book Description
Artificial intelligence (AI) has grown in presence in asset management and has revolutionized the sector in many ways. It has improved portfolio management, trading, and risk management practices by increasing efficiency, accuracy, and compliance. In particular, AI techniques help construct portfolios based on more accurate risk and return forecasts and more complex constraints. Trading algorithms use AI to devise novel trading signals and execute trades with lower transaction costs. AI also improves risk modeling and forecasting by generating insights from new data sources. Finally, robo-advisors owe a large part of their success to AI techniques. Yet the use of AI can also create new risks and challenges, such as those resulting from model opacity, complexity, and reliance on data integrity.
Author: Adam Butler Publisher: John Wiley & Sons ISBN: 1119220378 Category : Business & Economics Languages : en Pages : 209
Book Description
Build an agile, responsive portfolio with a new approach to global asset allocation Adaptive Asset Allocation is a no-nonsense how-to guide for dynamic portfolio management. Written by the team behind Gestaltu.com, this book walks you through a uniquely objective and unbiased investment philosophy and provides clear guidelines for execution. From foundational concepts and timing to forecasting and portfolio optimization, this book shares insightful perspective on portfolio adaptation that can improve any investment strategy. Accessible explanations of both classical and contemporary research support the methodologies presented, bolstered by the authors' own capstone case study showing the direct impact of this approach on the individual investor. Financial advisors are competing in an increasingly commoditized environment, with the added burden of two substantial bear markets in the last 15 years. This book presents a framework that addresses the major challenges both advisors and investors face, emphasizing the importance of an agile, globally-diversified portfolio. Drill down to the most important concepts in wealth management Optimize portfolio performance with careful timing of savings and withdrawals Forecast returns 80% more accurately than assuming long-term averages Adopt an investment framework for stability, growth, and maximum income An optimized portfolio must be structured in a way that allows quick response to changes in asset class risks and relationships, and the flexibility to continually adapt to market changes. To execute such an ambitious strategy, it is essential to have a strong grasp of foundational wealth management concepts, a reliable system of forecasting, and a clear understanding of the merits of individual investment methods. Adaptive Asset Allocation provides critical background information alongside a streamlined framework for improving portfolio performance.
Author: John B. Guerard, Jr. Publisher: Springer Science & Business Media ISBN: 0387774394 Category : Business & Economics Languages : en Pages : 796
Book Description
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.
Author: Wolfgang Bessler
Author: Richard O. Michaud
Author: Frank J. Fabozzi
Author: William Kinlaw
Author: Woo Chang Kim
Author: Richard E. Oberuc
Author: Jean-Luc Prigent
Author: Söhnke M. Bartram
Author: Adam Butler
Author: John B. Guerard, Jr.