EMANUELE BORGONOVO AND MARCO PERCOCO 57Table 3.1Composition of the Dow Jones Industrial Average Index
Stock Sector
Alcoa In. Manufacturing
American Express Co. Financial services
AT&T Corp. Telecommunication and ICT
Boeing Co. Manufacturing
Caterpillar Inc. Other
Citigroup Inc. Manufacturing
Coca-Cola Co. Manufacturing
Walt Disney Co. Others
E.I. DuPont de Nemours & Co. Manufacturing
Eastman Kodak Co. Manufacturing
Exxon Mobil Corp. Energy
General Electric Co. Energy
General Motors Corp. Manufacturing
Hewlett-Packard Co. Telecommunication and ICT
Hope Depot Inc. Others
Honeywell International Inc. Telecommunication and ICT
Intel Corp. Telecommunication and ICT
International Business Machines Corp. Telecommunication and ICT
International Paper Co. Manufacturing
Johnson&Johnson Manufacturing
J.P. Morgan Chase & Co. Financial Services
McDonald’s Corp. Others
Merck & Co. Others
Microsoft Corp. Telecommunication and ICT
3M Co. Telecommunication and ICT
Altria Group Inc. Others
Procter & Gamble Manufacturing
SBS Communications Inc. Telecommunication and ICT
United Technologies Corp. Others
Wal-Mart Stores Inc. Others
Problem (3.26) states that the optimal portfolio composition (a∗) is the one
that minimizes volatility for a given return. Since asset values change with
time, portfolio composition should be re-assessed in order to matcha∗.
Given a suboptimal portfolio, an ideal strategy might consist in the fastest or
cheapest way to reach the minimum variance (as of March 2002). Manganelli
(2004) proposes a strategy based on volatility sensitivity analysis (VSA) to
achieve efficient reallocation. We refer to this strategy as to the “optimal”
strategy.^7