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

0.75

0.7

0.65

0.6

0.55

0.5

0.45

123

Portfolio specific volatility

456

0.95

0.9

0.85

0.8

Portfolio alpha

Specific 2% constraint

Mean variance frontier Systematic 5% constraint

Specific 3% constraint

Figure 1.4 Portfolio specific volatility with constraints on systematic and specific risk.

0.75

0.7

0.65

0.6

0.55

0.5

0.45

6 6.5 7

Portfolio volatility

7.5 8 8.5 9

0.95

0.9

0.85

0.8

Mean portfolio alpha

Alpha uncertainty frontier

MV frontier Sys 5% and alpha uncertainty

Spe 2% and alpha uncertainty

Figure 1.5 Portfolio volatility with alpha uncertainty and constraints on systematic and
specific risk.