Black Litterman and Robust Portfolio Optimization

The risk and portfolio management with econometrics

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Unformatted text preview: nty in the Portfolio Allocation Process.” The RISK AND PORTFOLIO MANAGEMENT WITH ECONOMETRICS, VER. 11/11/2012. © P. KOLM. 2 main idea behind robust portfolio optimization is explained under “The Basic Ideas behind Robust Optimization” RISK AND PORTFOLIO MANAGEMENT WITH ECONOMETRICS, VER. 11/11/2012. © P. KOLM. 3 Markowitz’s Mean-Variance Framework: The Risk Aversion Formulation An investor allocates his wealth by solving the portfolio optimization problem max w ¢m - lw ¢Sw w s.t. w Î C where w: portfolio weights m : expected returns S : covariance matrix of return l : risk aversion C: set of constraints This is referred to as the risk aversion formulation of the M-V problem It is equivalent to the variance minimization formulation1 (discussed in previous lectures) and the expected return maximization formulation2 RISK AND PORTFOLIO MANAGEMENT WITH ECONOMETRICS, VER. 11/11/2012. © P. KOLM. 4 Estimating the Inputs to Mean-Variance Optimization So far we have assumed that the exp...
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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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