The Factor-Portfolios Approach to Asset Management using Genetic Algorithms
AbstractWe present an investment process that: (i) decomposes securities into risk factors; (ii) allows for the construction of portfolios of assets that would selectively expose the manager to desired risk factors; (iii) perform a risk allocation between these portfolios, allowing for tracking error restrictions in the optimization process and (iv) give the flexibility to manage dinamically the transfer coeffficient (TC). The contribution of this article is to present an investment process that allows the asset manager to limit risk exposure to macro-factors - including expectations on correlation dynamics - whilst allowing for selective exposure to risk factors using mimicking portfolios that emulate the behaviour of given specific. An Artificial Intelligence (AI) optimisation technique is used for risk-budget allocation to factor-portfolios.
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Bibliographic InfoPaper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 511.
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Active Management; Portfolio Optimization; Genetic Algorithms; Propensities. Classification JEL: G11; G14; G32.;
Other versions of this item:
- Alejandro Reveiz Herault, 2008. "The Factor-Portfolios Approach to Asset Management using Genetic Algorithms," BORRADORES DE ECONOMIA 004626, BANCO DE LA REPÚBLICA.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alejandro Revéiz Herault & Sebastian Rojas, .
"The case for active management from the perspective of Complexity Theory,"
Borradores de Economia
495, Banco de la Republica de Colombia.
- Aeljandro Reveiz Herault & Sebastian Rojas, 2008. "The case for active management from the perspective of Complexity Theory," BORRADORES DE ECONOMIA 004566, BANCO DE LA REPÚBLICA.
- Vineer Bhansali & Mark B. Wise, 2001. "Forecasting Portfolio Risk in Normal and Stressed Markets," Papers nlin/0108022, arXiv.org, revised Sep 2001.
- Charles S. Morris & Robert Neal & Douglas Rolph, 1998. "Credit spreads and interest rates : a cointegration approach," Research Working Paper, Federal Reserve Bank of Kansas City 98-08, Federal Reserve Bank of Kansas City.
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