Seven Sins in Portfolio Optimization
AbstractAlthough modern portfolio theory has been in existence for over 60 years, fund managers often struggle to get its models to produce reliable portfolio allocations without strongly constraining the decision vector by tight bands of strategic allocation targets. The two main root causes to this problem are inadequate parameter estimation and numerical artifacts. When both obstacles are overcome, portfolio models yield excellent allocations. In this paper, which is primarily aimed at practitioners, we discuss the most common mistakes in setting up portfolio models and in solving them algorithmically.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1310.3396.
Date of creation: Oct 2013
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-18 (All new papers)
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