Download or read book Portfolio Optimization Using Forward Looking Information written by Alexander Kempf and published by . This book was released on 2014 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we develop a new family of estimators of the covariance matrix that relies solely on forward-looking information. These estimators only use current price information from a cross-section of plain-vanilla options and employ different higher moments of the implied return distributions. In an out-of-sample study for US blue-chip stocks we show that a minimum-variance strategy based on these fully implied covariance estimators consistently outperforms a wide range of different benchmark strategies, including strategies based on historical estimates, index investing, and investing according to the 1/N rule. This result is very robust and holds with and without short-sales restrictions, with portfolios being rebalanced at different frequencies, and with transactions costs taken into account. The outperformance is particular strong in crisis periods when information flow and information asymmetry are high. The outperformance can only be reached using a fully implied approach; partially implied approaches that combine implied moments with historical ones might even perform worse than purely historical approaches. We further observe that covariance estimators based on implied second and fourth moments outperform estimators based on implied skewness. In conclusion, our results show that investors can better exploit possible diversification benefits by relying solely on forward-looking information from options markets.

Download or read book Forward Looking Information in Portfolio Selection written by Christian Vial and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis analyzes the informational content of option-implied information in a portfolio optimization context. Options are intended to price future contingencies and thus incorporate the market's expectations about future states. Using this implied information inherent in exchange-traded options allows us to extract forward-looking density functions and moments of the underlying securities. For this purpose, we apply different techniques to interpolate the distribution and moments inherent in Dow Jones Industrial Average (DJIA) and S&P 100 constituent options. We analyze the resulting information relative to different portfolio allocation strategies, and examine whether option-implied portfolios outperform their historical counterparts. For the period of analysis from January 1996 to January 2012 we find that options add forecasting power to a portfolio optimization problem. However, although option-implied portfolios outperform those based on historical information, differences are often insignificant. Only one strategy (BICM Adjusted) significantly outperforms the benchmark portfolios at all times. We can attribute this to its consideration of higher-order implied moments. The results for different optimization strategies and estimation periods are robust, and suggest that forward-looking information is inherent in exchange-traded options. In specific situations, this option-implied information proves to be a reasonable alternative to historical moment estimators.

Download or read book Factor Based Portfolio Optimization written by Jun Kyung Auh and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that a parsimonious factor model can alleviate the problems of using raw historical data subject to large idiosyncratic noise in mean-variance portfolio optimization. Through the factor structure, we incorporate forward-looking information into the expected returns, exploiting a set of variables known to predict the aggregate factor from prior studies. Estimating parameters in a manner consistent with the theoretical assumption that the mean and variance correspond to future return distributions leads to better out-of-sample performance, accentuating the importance of feeding proper information.

Download or read book Fuzzy Portfolio Optimization written by Pankaj Gupta and published by Springer. This book was released on 2014-03-17 with total page 329 pages. Available in PDF, EPUB and Kindle. Book excerpt: This monograph presents a comprehensive study of portfolio optimization, an important area of quantitative finance. Considering that the information available in financial markets is incomplete and that the markets are affected by vagueness and ambiguity, the monograph deals with fuzzy portfolio optimization models. At first, the book makes the reader familiar with basic concepts, including the classical mean–variance portfolio analysis. Then, it introduces advanced optimization techniques and applies them for the development of various multi-criteria portfolio optimization models in an uncertain environment. The models are developed considering both the financial and non-financial criteria of investment decision making, and the inputs from the investment experts. The utility of these models in practice is then demonstrated using numerical illustrations based on real-world data, which were collected from one of the premier stock exchanges in India. The book addresses both academics and professionals pursuing advanced research and/or engaged in practical issues in the rapidly evolving field of portfolio optimization.

Download or read book Optimal Multi Horizon Portfolios with Forward Looking Expectations and Loss Aversion written by Khalid Alsweilem and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a framework for portfolio optimization that makes three departures from the traditional mean-variance approach. First, we optimize the portfolio over multiple horizons, reflecting the belief that long-term investors care about intertemporal gains and losses, as well as cumulative performance, rather than simply long-run performance (expressed as a terminal value at the end of the optimization period). Second, rather than approximate through variance, which includes upside performance too, we account for loss aversion by simulating more severe shock events than those captured in historical samples, as well as through a specification of investor utility that sharply penalizes loses beyond a specified threshold. Finally, our framework allows investors to express forward-looking expectations (or make Bayesian adjustments) around how future performance may differ from those observed in the past. We demonstrate the value of the framework and how it could be implemented through a consideration of the problem faced by sovereign wealth funds with long-term investment horizons. While this implementation exercise is illustrative, we find that these adjustments - which more realistically capture the observed behavior of sovereign wealth funds as long-term investors than the traditional mean-variance heuristic - result in meaningful shifts in optimal portfolio weights.

Download or read book Robust Portfolio Optimization and Management written by Frank J. Fabozzi and published by John Wiley & Sons. This book was released on 2007-04-27 with total page 513 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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

Download or read book Portfolio Optimization with Different Information Flow written by Caroline Hillairet and published by Elsevier. This book was released on 2017-02-10 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt: Portfolio Optimization with Different Information Flow recalls the stochastic tools and results concerning the stochastic optimization theory and the enlargement filtration theory.The authors apply the theory of the enlargement of filtrations and solve the optimization problem. Two main types of enlargement of filtration are discussed: initial and progressive, using tools from various fields, such as from stochastic calculus and convex analysis, optimal stochastic control and backward stochastic differential equations. This theoretical and numerical analysis is applied in different market settings to provide a good basis for the understanding of portfolio optimization with different information flow. Presents recent progress of stochastic portfolio optimization with exotic filtrations Shows you how to apply the tools of the enlargement of filtrations to resolve the optimization problem Uses tools from various fields from enlargement of filtration theory, stochastic calculus, convex analysis, optimal stochastic control, and backward stochastic differential equations

Download or read book Financial Risk Modelling and Portfolio Optimization with R written by Bernhard Pfaff and published by John Wiley & Sons. This book was released on 2016-08-16 with total page 448 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Risk Modelling and Portfolio Optimization with R, 2nd Edition Bernhard Pfaff, Invesco Global Asset Allocation, Germany A must have text for risk modelling and portfolio optimization using R. This book introduces the latest techniques advocated for measuring financial market risk and portfolio optimization, and provides a plethora of R code examples that enable the reader to replicate the results featured throughout the book. This edition has been extensively revised to include new topics on risk surfaces and probabilistic utility optimization as well as an extended introduction to R language. Financial Risk Modelling and Portfolio Optimization with R: Demonstrates techniques in modelling financial risks and applying portfolio optimization techniques as well as recent advances in the field. Introduces stylized facts, loss function and risk measures, conditional and unconditional modelling of risk; extreme value theory, generalized hyperbolic distribution, volatility modelling and concepts for capturing dependencies. Explores portfolio risk concepts and optimization with risk constraints. Is accompanied by a supporting website featuring examples and case studies in R. Includes updated list of R packages for enabling the reader to replicate the results in the book. Graduate and postgraduate students in finance, economics, risk management as well as practitioners in finance and portfolio optimization will find this book beneficial. It also serves well as an accompanying text in computer-lab classes and is therefore suitable for self-study.

Download or read book Enhancing Portfolio Performance in Global Equity Allocation with a Forward Looking Indicator written by Subhransu Mohanty and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Black-Litterman model provides a reasonable platform to portfolio optimization and asset allocation by presenting an equilibrium state of the markets and only deviating from that equilibrium state with forward-looking strategic views. Index of Economic Freedom (IEF) can be used as a handy tool for forming such strategic views on global markets. Ex-post performance analysis of portfolios covering both developed and developing equity markets constructed with CAPM, Black-Litterman Equilibrium Implied Return and Black-Litterman Absolute View approaches, shows that by smoothing expected return with changes in IEF, significantly superior portfolio performance can be achieved at a lower risk. The Index of Economic Freedom contains superior information in terms of idiosyncratic country specific risks which are not revealed by market risks. This study has particular relevance to asset allocation strategy, portfolio optimization and risk minimization in the context of global equity markets.

Download or read book Intelligent Systems and Applications written by Kohei Arai and published by Springer Nature. This book was released on with total page 890 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Portfolio Optimization and Performance Analysis written by Jean-Luc Prigent and published by CRC Press. This book was released on 2007-05-07 with total page 451 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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

Download or read book Modern Multi Factor Analysis of Bond Portfolios written by Giovanni Barone-Adesi and published by Springer. This book was released on 2015-12-03 with total page 137 pages. Available in PDF, EPUB and Kindle. Book excerpt: Where institutions and individuals averagely invest the majority of their assets in money-market and fixed-income instruments, interest rate risk management could be seen as the single most important global financial issue. However, the majority of the key techniques used by most investors were developed several decades ago, and the advantages of multi-factor models are not fully recognised by many researchers and practitioners. This book provides clear and practical insight into bond portfolios and portfolio management through key empirical analysis. The authors use extensive sets of empirical data to describe the value potentially added by more recent techniques to manage interest rate risk relative to traditional techniques and to present empirical evidence of such an added value. Beginning with a description of the simplest models and moving on to the most complex, the authors offer key recommendations for the future of rate risk management.

Download or read book Education Research and Business Technologies written by Cristian Ciurea and published by Springer Nature. This book was released on 2023-01-01 with total page 374 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book includes high-quality research papers presented at 21st International Conference on Informatics in Economy (IE 2022), which is held in Bucharest, Romania, during May 2022. This book covers research results in business informatics and related computer science topics, such as IoT, mobile-embedded and multimedia solutions, e-society, enterprise and business solutions, databases and big data, artificial intelligence, data mining and machine learning, quantitative economics.

Download or read book Modern Portfolio Optimization with NuOPT S PLUS and S Bayes written by Bernd Scherer and published by Springer Science & Business Media. This book was released on 2005-05-03 with total page 422 pages. Available in PDF, EPUB and Kindle. Book excerpt: Portfolio optimization and construction methodologies have become an critical ingredient of asset and fund management, while at same time portfolio risk assesment has become an essential ingredient in risk management.

Download or read book Systematic Trading written by Robert Carver and published by Harriman House Limited. This book was released on 2015-09-14 with total page 247 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is not just another book with yet another trading system. This is a complete guide to developing your own systems to help you make and execute trading and investing decisions. It is intended for everyone who wishes to systematise their financial decision making, either completely or to some degree. Author Robert Carver draws on financial theory, his experience managing systematic hedge fund strategies and his own in-depth research to explain why systematic trading makes sense and demonstrates how it can be done safely and profitably. Every aspect, from creating trading rules to position sizing, is thoroughly explained. The framework described here can be used with all assets, including equities, bonds, forex and commodities. There is no magic formula that will guarantee success, but cutting out simple mistakes will improve your performance. You'll learn how to avoid common pitfalls such as over-complicating your strategy, being too optimistic about likely returns, taking excessive risks and trading too frequently. Important features include: - The theory behind systematic trading: why and when it works, and when it doesn't. - Simple and effective ways to design effective strategies. - A complete position management framework which can be adapted for your needs. - How fully systematic traders can create or adapt trading rules to forecast prices. - Making discretionary trading decisions within a systematic framework for position management. - Why traditional long only investors should use systems to ensure proper diversification, and avoid costly and unnecessary portfolio churn. - Adapting strategies depending on the cost of trading and how much capital is being used. - Practical examples from UK, US and international markets showing how the framework can be used. Systematic Trading is detailed, comprehensive and full of practical advice. It provides a unique new approach to system development and a must for anyone considering using systems to make some, or all, of their investment decisions.

Download or read book Portfolio Construction and Analytics written by Frank J. Fabozzi and published by John Wiley & Sons. This book was released on 2016-03-23 with total page 579 pages. Available in PDF, EPUB and Kindle. Book excerpt: A detailed, multi-disciplinary approach to investment analytics Portfolio Construction and Analytics provides an up-to-date understanding of the analytic investment process for students and professionals alike. With complete and detailed coverage of portfolio analytics and modeling methods, this book is unique in its multi-disciplinary approach. Investment analytics involves the input of a variety of areas, and this guide provides the perspective of data management, modeling, software resources, and investment strategy to give you a truly comprehensive understanding of how today's firms approach the process. Real-world examples provide insight into analytics performed with vendor software, and references to analytics performed with open source software will prove useful to both students and practitioners. Portfolio analytics refers to all of the methods used to screen, model, track, and evaluate investments. Big data, regulatory change, and increasing risk is forcing a need for a more coherent approach to all aspects of investment analytics, and this book provides the strong foundation and critical skills you need. Master the fundamental modeling concepts and widely used analytics Learn the latest trends in risk metrics, modeling, and investment strategies Get up to speed on the vendor and open-source software most commonly used Gain a multi-angle perspective on portfolio analytics at today's firms Identifying investment opportunities, keeping portfolios aligned with investment objectives, and monitoring risk and performance are all major functions of an investment firm that relies heavily on analytics output. This reliance will only increase in the face of market changes and increased regulatory pressure, and practitioners need a deep understanding of the latest methods and models used to build a robust investment strategy. Portfolio Construction and Analytics is an invaluable resource for portfolio management in any capacity.

Download or read book Risk Based and Factor Investing written by Emmanuel Jurczenko and published by Elsevier. This book was released on 2015-11-24 with total page 488 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a compilation of recent articles written by leading academics and practitioners in the area of risk-based and factor investing (RBFI). The articles are intended to introduce readers to some of the latest, cutting edge research encountered by academics and professionals dealing with RBFI solutions. Together the authors detail both alternative non-return based portfolio construction techniques and investing style risk premia strategies. Each chapter deals with new methods of building strategic and tactical risk-based portfolios, constructing and combining systematic factor strategies and assessing the related rules-based investment performances. This book can assist portfolio managers, asset owners, consultants, academics and students who wish to further their understanding of the science and art of risk-based and factor investing. Contains up-to-date research from the areas of RBFI Features contributions from leading academics and practitioners in this field Features discussions of new methods of building strategic and tactical risk-based portfolios for practitioners, academics and students