Questions tagged [portfolio-optimization]
Questions related to mathematical methods used for searching of optimal portfolio structures. Also related to questions on optimal structure of portfolios from both strategic and tactical point of view
62 questions
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Replicate a Portfolio with Given Payoff
Looking for a convincing general strategy [not trial and error] to solve these kind of questions:
Any help will be super helpful!
Thanks a bunch!
Replicate a portfolio on an underlying asset $S$ ...
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Maximum Sharpe portfolio (no short selling restrictions)
Suppose we have $n$ assets whose expected return vector is $r$ and is positive, and whose covariance matrix is $\Sigma$. Is there a closed form or quasi closed form (like the eigenvector of a matrix ...
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CVAR alternatives for optimization
Are there some alternatives to the CVaR measure for portfolio optimization, which are easier to implement for ex. with a linear program? They can be just approximations of CVaR or measures ...
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Monte Carlo (resampling) in m.v. portfolio optimization
The instability and high sensitivity of optimisation results can be augmented by adding another layer of quantitative methodology in the form of Monte Carlo Simulation. The name Monte Carlo alludes to ...
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Maximum Certainty Equivalent Portfolio with Transaction Costs
Out of curiosity I tried to compute the portfolio weights of a maximum certainty equivalent allocation, however, by incorporating (quadratic) transaction costs. However, my result is not as intuitive ...
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Quasi Random Monte Carlo in m.v. portfolio optimization
Not specifying a correlation matrix for the Monte Carlo Simulation's random returns is equivalent to assuming no correlation or a correlation coefficient of zero, which will seriously and adversely ...
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maximize Sharpe ratio in portfolio optimization
I am trying to understand how to maximize Sharpe ratio in portfolio optimization.
$\boxed{\begin{align}\max\>&\frac{r^Tx-r_f}{\sqrt{x^TQx}}\\ & \sum_i x_i = 1\\ & x_i\ge 0\end{align}}$
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name of this portfolio optimization strategy
I have come across a portfolio selection strategy that buys in equal amounts the top decile of expected earners, and simultaneously short sells the lowest decile in a similar fashion. What is this ...
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Why seperate portoflio between only risky and risky+risk-free asset
I am currently studying basic portfolio theory. I observed that, for minimizing the variance of a portfolio, one usually does the case of $n$ risky assets, and then $n$ risky assets together with one ...
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Portfolio optimisation with VaR or CVaR constraints using linear programming
I would like to optimize a portfolio allocation (maximizing the exposure or the expected return), but with VaR or CVaR contraints. (some parts of my portfolio cannot exceed a certain VaR)
How can I ...
- 2,023
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The optimization problem of the equal risk contribution portfolio
I try to understand the equal risk contribution (ERC) portfolio as described in On the Properties of Equally-Weighted Risk Contributions Portfolios by Teiletche and Roncalli.
For a given covariance ...
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Portfolio Optimization : Shrinkage of Covariance Matrix when data is available
It seems that shrinking the covariance matrix is especially useful if the number of individual stocks is greater than the number of data points. However is there any special gain if you're not ...
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Marginal Risk Contribution Formula
I am trying to understand and implement the standard 'marginal risk contribution' approach to portfolio risk and hoping to reconcile the formulae provided for its calculation in different sources. ...
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Risk Parity / Equal Risk Contribution with Tail Risk Measures
Risk Parity or (synonymous) Equal Risk Contribution is an approach to portfolio construction which could work in theory with a broad class of risk measures. Yet, all references I have found so far ...
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How to derive portfolio weights from risk budget
Goal: I'm trying to frame target volatility investments given some view on what asset to overweight. For example, starting with a risk-parity allocation, tweak the marginal risk contribution of each ...
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Asset Allocation with near zero rates
With central banks pegging interest rates to near zero rates, an argument could be made that the future distribution of interest rates and bond returns are not normally distributed. How has modern ...
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How to perform portfolio optimization with user-defined expected return and variances using R?
I found some functions for Markowitz mean variance portfolio optimization in R such as portfolio.optim in tseries package.
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Why does the likelihood of corner solutions in portfolios increase as the number of assets grows?
A three- asset portfolio doesn't seem prone to generating corner solutions, which are very high allocations to one of the assets and $0$ to the others. Instead, when the number of assets is low, these ...
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Is quadratic programming used to maximize portfolio skewness and kurtosis?
Quadratic programming, a type of convex optimization, is used to solve the minimum variance portfolio weights $$w = \arg \min_w \sigma_P^2 = w^\top \Sigma w$$
because the objective function coincides ...
- 3,140
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The Viability/Usefulness of Mean Standard Deviation Optimization?
The classical Markowitz objective is:
$$
f(w) = w^T \mu - \frac{\lambda}{2} w ^T \Sigma w = \mathbb{E}[r^Tw] - \frac{\lambda}{2} \sigma^2(r^Tw)
$$
where $\mu$ is the vector of mean returns. This is a ...
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Negative variance?
Using the formula w*Cov*t(w) I can generate a negative portfolio variance. What are the implications of a negative variance? Should I just assume it's zero? A negative variance is troublesome ...
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Turnover as a soft constraint for portfolio optimization
I am using cvxpy to do a simple portfolio optimization.
I implemented the following dummy code
...
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Minimize overall portfolio turnover under constraints
Assume I have M portfolios, each of them can be represented as a T by N matrix, where N represents number of stocks traded and T represents number of days. For each portfolio matrix, each row is under ...
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Calculating the efficient frontier from expected returns and SD
I'm trying to calculate the efficient frontier (and the optimal portfolio at the Sharpe ratio) given two vectors for a portfolio: (1) expected returns and (2) historical standard deviations. I would ...
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How to measure the practicality of a market portfolio for long-term investment?
Do you believe that the composition of the market portfolio that you have found is a desirable or practical one as an investment?
Explain why or why not, based on the positions of your stocks.
I ...
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