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Portfolio Optimization. I Discuss aspects of PO, including the Efficient Frontier, Capital Allocation Line, Modern Portfolio Theory and Portfolio Correlation. II Discuss how LTCM’s Portfolio Optimization went wrong, including the portfolio’s correlation factor.

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Portfolio optimization
Portfolio Optimization

I Discuss aspects of PO, including the Efficient Frontier, Capital Allocation Line, Modern Portfolio Theory and Portfolio Correlation.

II Discuss how LTCM’s Portfolio Optimization went wrong, including the portfolio’s correlation factor.

III Discuss Portfolio Optimization and some problems associated with it.

IV Contrast a simpler alternative to more elaborate strategies while producing more consistent performance



http://www.creativewealthstrategies.com/Modern_Portfolio_Theory.dochttp://www.creativewealthstrategies.com/Modern_Portfolio_Theory.doc

I b


I chttp://www.creativewealthstrategies.com/Modern_Portfolio_Theory.doc


The Efficient Frontier for S&P 100http://www.creativewealthstrategies.com/Modern_Portfolio_Theory.doc

http://www.nag.co.uk/doc/TechRep/Pdf/tr2_00.pdf

I d


http://www.moneychimp.com/articles/valuation/capm.htmhttp://www.creativewealthstrategies.com/Modern_Portfolio_Theory.doc

I e


http://http://www.creativewealthstrategies.com/Modern_Portfolio_Theory.docen.wikipedia.org/wiki/File:Markowitz_frontier.jpg

Efficient Frontier.

I f


Portfolio Optimization with two assets http://www.creativewealthstrategies.com/Modern_Portfolio_Theory.doc

Corporate Bond Treasury Risk-free

Optimal Portfolio

Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk, Philippe Jorion, pps 557-563

II a


Portfolio Optimizationhttp://www.creativewealthstrategies.com/Modern_Portfolio_Theory.doc

Capital Allocation Line

The Efficient Frontier

Corporate Bond

Treasury Bond

Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk, Philippe Jorion, pps 557-563

II b


www.indexfundeducator.com http://www.creativewealthstrategies.com/Modern_Portfolio_Theory.doc

II c


www.indexfundeducator.com http://www.creativewealthstrategies.com/Modern_Portfolio_Theory.doc

II d


www.indexfundeducator.com http://www.creativewealthstrategies.com/Modern_Portfolio_Theory.doc

II e


Risk and the Number of Securitieshttp://www.creativewealthstrategies.com/Modern_Portfolio_Theory.doc

Risk (% pa)

Number of Securities

Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk, Philippe Jorion, pps 557-563

II f


Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk, Philippe Jorion, pps 557-563

II g


default-rate volatility Financial Risk, Philippe Jorion, pps 557-563

Moody’s Investor Services, Alexandra Berthault

II h


III a Financial Risk, Philippe Jorion, pps 557-563

http://www.travismorien.com/FAQ/portfolios/mptcriticism.htm


IV a Financial Risk, Philippe Jorion, pps 557-563


IV b Financial Risk, Philippe Jorion, pps 557-563


Passive investing produces better returns over time
Passive Investing Produces Better Returns Over Time Financial Risk, Philippe Jorion, pps 557-563

IV c


The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective. - Warren Buffett

http://www.travismorien.com/FAQ/portfolios/mptcriticism.htm

IV d


To summarize
To summarize than simple behavior, but simple behavior is more effective.:

Optimum portfolio is where

Efficient frontier meets the CAL

http://www.moneychimp.com/articles/valuation/capm.htm


Lessons learned from ltcm
Lessons learned from LTCM than simple behavior, but simple behavior is more effective.

Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk, Philippe Jorion, pps 557-563


Mpt not realistic
MPT Not Realistic than simple behavior, but simple behavior is more effective.

http://www.travismorien.com/FAQ/portfolios/mptcriticism.htm


Passive investing produces better returns over time1
Passive Investing Produces Better Returns Over Time than simple behavior, but simple behavior is more effective.


Thank you

Thank you than simple behavior, but simple behavior is more effective.


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