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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

slide5
The Efficient Frontier for S&P 100

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

I d

slide8
Portfolio Optimization with two assets

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

slide9
Portfolio Optimization

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

slide13
Risk and the Number of Securities

Risk (% pa)

Number of Securities

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

II f

slide14
Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk, Philippe Jorion, pps 557-563

II g

slide15
default-rate volatility

Moody’s Investor Services, Alexandra Berthault

II h

slide16
III a

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

slide20
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:

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

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

mpt not realistic
MPT Not Realistic

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

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