Questions tagged [portfolio-optimization]
Questions related to mathematical methods used for searching of optimal portfolio structures. Also related to questions on optimal structure of portfolios from both strategic and tactical point of view
761 questions
2 votes
1 answer
177 views
The use of L2 Regularization in portfolio optimization
In portfolio optimization, the goal is to calibrate the weights of assets in a portfolio according to a stated objective (mean-variance, minimum-variance, risk parity etc.). Often, mean-variance or ...
- 2,886
0 votes
2 answers
99 views
Constrained Optimization Problem Applied to a Portfolio
Can someone explain, how do i find the weights $ w_A, w_B, w_C $ that minimize the variance of the portfolio? And also what are the first-order conditions? (FOC) $\sigma_{A}^{2}$ $\sigma_{B}^{2}$ and $...
- 1
1 vote
1 answer
92 views
Discrepancy in Ulcer Index calculation with the Riskfolio-Lib library
I am using the Riskfolio-Lib Python library to calculate the Ulcer Index. When I run the function, the values I get are on the order of hundredths (for example, 0.0X). My issue is that, based on other ...
- 111
4 votes
1 answer
224 views
Total Portfolio Approach vs Mean-Variance Optimization
I have seen several articles lately about a "Total Portfolio Approach" (TPA) that some pension funds are exploring in managing their assets as opposed to the traditional "Strategic ...
- 6,897
1 vote
0 answers
55 views
good practices for computing expected returns for portofolio construction [closed]
I am currently studying portofolio construction and am trying to construct one using an extended Markovitz setting, which will give me the weights after solving. My problem is the computation of ...
- 31
3 votes
1 answer
184 views
Has there been any research that allows utility maximization with arbitrage?
I have read the paper "Pricing without no-arbitrage condition in discrete time" by Carassus and Lépinette (2022) that explains how to price under arbitrage. They introduced a weak assumption ...
- 141
0 votes
0 answers
70 views
CVaR/VaR-based Sharpe ratio calculation problems
guys. Currently I'm trying to realize one portfolio allocation model. I have n-1 risk assets and 1 fully unrisk asset. So, at i ...
- 243
1 vote
0 answers
106 views
Information-theoretic upper bound on portfolio log-growth
I recently formulated and successfully solved a simple model portfolio optimization problem. I'm not a mathematician, but the result seems to have close ties to information theory. I've tried ...
- 11
0 votes
0 answers
91 views
Stock clustering as a part of portfolio diversification
I have a research hypothesis and now I'am trying to look at it from different angles.Now I am a bit puzzled.Maybe someone is also interested in machine learning application(especially clustering) in ...
3 votes
0 answers
86 views
Explaination and Reference of Formula for Portfolio Optimization
I stumbled upon Pricing Currency Risks by Chernov and Dahlquist (Jrl Fin, 2023). They state on page 698-699: "Suppose that we have $N$ basis assets with an $N × 1$ vector of excess returns $R^e_{...
- 31
0 votes
0 answers
82 views
Clarification regarding solution to Call-Options Arbitrage question
I'm having a hard time understanding the solution to the following problem from Dan Stefanica's book "A Primer for the Mathematics of Financial Engineering": Call options with strikes 100, ...
- 101
3 votes
1 answer
269 views
Modern treatment of Merton's 1969 continuous time portfolio choice paper
https://www.sfu.ca/~kkasa/Merton_69.pdf This is a classic paper, but it's from 1969 and very old. I was wondering, before I attempt to read this paper, are there any more modern, slicker derivations ...
1 vote
0 answers
73 views
Comparing optimal strategies in Black-Scholes model with python
Consider the 1-dimensional Black-Scholes model $$dS_t = S_t(\mu dt + \sigma dW_t)$$ $$dB_t = rB_t dt$$ Given a maturity time $T$, by martingale method the optimal discounted portfolio at the maturity ...
- 85
0 votes
1 answer
324 views
Linear regression on portfolio return (to estimate asset class/factor returns)
I know the portfolio return and the share in each asset class, but don't have the return on those asset classes. My idea is to estimate the return on the different asset classes by a linear regression ...
- 9
0 votes
0 answers
68 views
How to perform a long short risk budget optimization?
In their paper titled "Trend-Following meets Risk-Parity" UBS proposed an optimization algorithm for performing risk budgeting for long short portfolios. The formulation was as follows: $$ ...
- 113