Portfolio Optimization

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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 LTCMs Portfolio Optimization went
  wrong, including the portfolios 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

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http//www.creativewealthstrategies.com/Modern_Por
tfolio_Theory.doc
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The Efficient Frontier for SP 100
http//www.nag.co.uk/doc/TechRep/Pdf/tr2_00.pdf
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http//www.moneychimp.com/articles/valuation/capm.
htm
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http//en.wikipedia.org/wiki/FileMarkowitz_fronti
er.jpg
Efficient Frontier.
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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
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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
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www.indexfundeducator.com
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www.indexfundeducator.com
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www.indexfundeducator.com
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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
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Value at Risk, 3rd Ed. The New Benchmark for
Managing Financial Risk, Philippe Jorion, pps
557-563
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default-rate volatility
Moodys Investor Services, Alexandra Berthault
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http//www.travismorien.com/FAQ/portfolios/mptcrit
icism.htm
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Passive Investing Produces Better Returns Over
Time
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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/mptcrit
icism.htm
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To summarize

• Optimum portfolio is where
• Efficient frontier meets the CAL

http//www.moneychimp.com/articles/valuation/capm.
htm
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Lessons learned from LTCM
Value at Risk, 3rd Ed. The New Benchmark for
Managing Financial Risk, Philippe Jorion, pps
557-563
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MPT Not Realistic
http//www.travismorien.com/FAQ/portfolios/mptcrit
icism.htm
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Passive Investing Produces Better Returns Over
Time
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Thank you