Black Litterman and Robust Portfolio Optimization

11112012 p kolm 6 overview of techniques aimed at

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Unformatted text preview: K AND PORTFOLIO MANAGEMENT WITH ECONOMETRICS, VER. 11/11/2012. © P. KOLM. 6 Overview of Techniques Aimed at Mitigating Estimation Error in the M-V Framework Constrain portfolio weights (“the practitioner’s solution”) o No short-selling constraints (see for example, Frost and Savarino (1988), Chopra (1991), Gupta and Eichhorn (1998), Grauer and Shen (2000), Jagannathan and Ma (2003)) o “Diversification indicators” (Bouchard, Potters and Aguilar (1997)) Improve estimation o Bayesian techniques: James-Stein estimation (Jobson and Korkie (1981), Ledoit and Wolf (2003)) Black-Litterman model (Black and Litterman (1990)) o Robust statistics (Trojani and Vanini (2002), DeMiguel and Nogales (2006)) Incorporate estimation error in portfolio allocation o Adjustment of risk aversion factor (Horst, Roon and Werker (2000)) RISK AND PORTFOLIO MANAGEMENT WITH ECONOMETRICS, VER. 11/11/2012. © P. KOLM. 7 o Resampled efficiency (Michaud (1998), Jorion (1992), Scherer (2002), Markowitz and Usmen (2003)) o Robust optimization (El Ghaoui and Lebret (1977), Ben-Tal and Nemirovski (1998; (19...
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This document was uploaded on 02/17/2014 for the course COURANT G63.2751.0 at NYU.

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