Improved estimation of covariance matrix for portfolio optimization. Priyanka Agarwal Rez Chowdhury Dzung Du Nathan Mullen Ka Ki Ng. Progress so far:. Simulations for 12 estimators presented last week Implementation of Benninga’s two block estimator Speed Optimization
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Improved estimation of covariance matrix for portfolio optimization
Progress so far:
Motivation behind shrinkage and portfolio of estimators
Two Block Estimator
Two Block Estimator - Methodology
Two Block Estimator – Arbitrary example
Two Block Estimator – Results
Portfolio with two block estimator performs the best amongst all with no constraints.
Two Block Estimator – Improvements
* We may implement this if time permits (this was not tested by Disatnik, Benninga 2006)
Estimate of shrinkage constant (shrinkage to market)