Tag Archives: portfolio optimisation

The portfolio optimization higher-moment credo

The question of skewness and kurtosis in portfolio optimization. Previously Problem 4 of “The top 7 portfolio optimization problems” concerns the use of higher moments. “Further adventures with higher moments” is the most recent in a series of posts on the efficacy of higher moments in optimization.  This set includes the observation that “trade selection” … Continue reading

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The efficacy of higher moments in portfolio optimization

On Monday I gave a talk at the London Quant Group entitled “Exploring the efficacy of higher moments in portfolio optimisation”.  A substantial number of people showed up, and they taught me quite a lot about the subject.  So it seems to have been successful. There are now annotated slides available. The slides point towards … Continue reading

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Predicted correlations and portfolio optimization

What effect do predicted correlations have when optimizing trades? Background A concern about optimization that is not one of “The top 7 portfolio optimization problems” is that correlations spike during a crisis which is when you most want optimization to work. This post looks at a small piece of that question.  It wonders if increasing predicted … Continue reading

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The top 7 portfolio optimization problems

Stumbling blocks on the trek from theory to practical optimization in fund management. Problem 1: portfolio optimization is too hard If you are using a spreadsheet, then this is indeed a problem. Spreadsheets are dangerous when given a complex task.  Portfolio optimization qualifies as complex in this context (complex in data requirements). If you are … Continue reading

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Portfolio optimization inside out

A possible way to search for constraints that improve optimization. The perspective The usual way of thinking about portfolio optimization is to first consider the utility and then restrict to where the constraints are satisfied.  A perfectly reasonable view. We use random portfolios to get a different point of view: first ensure that the constraints … Continue reading

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