Exact Properties of Measures of Optimal Investment for Institutional Investors
AbstractWe revisit the problem of calculating the exact distribution of optimal investments in a mean variance world under multivariate normality. The context we consider is where problems in optimisation are addressed through the use of Monte-Carlo simulation. Our findings give clear insight as to when Monte-Carlo simulation will, and will not work. Whilst a number of authors have considered aspects of this exact problem before, we extend the problem by considering the problem of an investor who wishes to maximise quadratic utility defined in terms of alpha and tracking errors. The results derived allow some exact and numerical analysis. Furthermore, they allow us to also derive results for the more traditional nonbenchmarked portfolio problem.
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Bibliographic InfoPaper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 0513.
Date of creation: Sep 2005
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Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-04 (All new papers)
- NEP-CFN-2005-10-04 (Corporate Finance)
- NEP-CMP-2005-10-04 (Computational Economics)
- NEP-FIN-2005-10-04 (Finance)
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