Optimizing Optimization: The Next Generation of Optimization Applications and Theory (Quantitative Finance)

24 Optimizing Optimization of optimization in the financial world has been less than remarkable. While the practice of using opt ...

Novel approaches to portfolio construction 25 In Section 2.2, we present a systematic calibration procedure for incorporating mo ...

26 Optimizing Optimization If the portfolio’s tracking error limit is defined explicitly by the primary risk model, then averagi ...

Novel approaches to portfolio construction 27 Example 1. Constraining active risk with fundamental and statistical risk models I ...

28 Optimizing Optimization which the statistical factor model’s risk constraint is sufficiently tight that the tracking error co ...

Novel approaches to portfolio construction 29 factor model risk constraint or by raising the max asset bound ( X ) constraint. T ...

30 Optimizing Optimization The case with TO  30% is shown here in the same way as previously shown in Figures 2.1 – 2.3 , and i ...

Novel approaches to portfolio construction 31 For TO  15%, the best cumulative returns are given by either a max asset holdings ...

32 Optimizing Optimization used as the primary risk model and constrains the active risk (tracking error) of the portfolio to 4% ...

Novel approaches to portfolio construction 33 Figure 2.8 shows contour plots of the cumulative and worst monthly active returns ...

34 Optimizing Optimization For the three different, second risk model constraints examples considered, the largest out-of-sample ...

Novel approaches to portfolio construction 35 the optimization portfolio solution. In the examples above, the predicted risk cou ...

36 Optimizing Optimization Portfolio optimization is as much about gaining insights into various components — objectives and con ...

Novel approaches to portfolio construction 37 portfolio optimizer returns a solution with expected return of 3%. Suppose there e ...

38 Optimizing Optimization A financial model provided as input to a strategy can only capture a portion of the information avail ...

Novel approaches to portfolio construction 39 the variation of the optimal expected return is completely determined by the track ...

40 Optimizing Optimization Similar to various concepts in Economics such as price elasticity of supply or income elasticity of d ...

Novel approaches to portfolio construction 41 Next , let us try to understand the impact of jointly varying the upper bounds on ...

42 Optimizing Optimization impact, transaction cost, etc., are easy to model and can be incorporated as objectives in a strategy ...

Novel approaches to portfolio construction 43 Interestingly, such an exercise not only helps the PM discover portfolios with bet ...