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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.
- Fall '14