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Optimizing a Portfolio of Liquid and Illiquid Assets

In: Optimal Financial Decision Making under Uncertainty

Author

Listed:
  • John M. Mulvey

    (Bendheim Center for Finance, Princeton University)

  • Woo Chang Kim

    (KAIST)

  • Changle Lin

    (Princeton University
    Chief Investment Office)

Abstract

Current market conditions pose new challenges for institutional investors. Traditional asset and liability models are struggling to meet investors’ needs due to poor performance of equity and bond markets. The move of portfolio allocation to alternative assets is evident. As a result, illiquidity issues and rebalancing difficulty arise. We propose some new tactics of commodity futures to enhance the performance of portfolio return as well as solving illiquidity issues. Hidden Markov Model and multistage stochastic optimization are used to systematically optimize portfolio over a set of assets.

Suggested Citation

  • John M. Mulvey & Woo Chang Kim & Changle Lin, 2017. "Optimizing a Portfolio of Liquid and Illiquid Assets," International Series in Operations Research & Management Science, in: Giorgio Consigli & Daniel Kuhn & Paolo Brandimarte (ed.), Optimal Financial Decision Making under Uncertainty, chapter 0, pages 151-175, Springer.
    • Handle: RePEc:spr:isochp:978-3-319-41613-7_7
    DOI: 10.1007/978-3-319-41613-7_7
    as

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