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Practical Scenario-Dependent Portfolio Optimization: A Framework to Combine Investor Views and Quantitative Discipline into Acceptable Portfolio Decisions

In: Interest Rate Models, Asset Allocation and Quantitative Techniques for Central Banks and Sovereign Wealth Funds

Author

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  • Roberts L. Grava

Abstract

Depending on the institution, personnel, teams or culture, getting marketfacing professionals with specific investment views to become enthusiastic about processes that impose quantitative discipline around their decisions can be a challenge of varying difficulty. At the risk of greatly oversimplifying matters, front office staff have exhibited tendencies to be less enthusiastic about utility functions, risk aversion parameters, yield curve factors and forecast confidence levels, more enthusiastic about their own concrete views about levels or prices in the financial markets they transact in and fairly confident about their investment decisions taken based on these intuitive views. With increasing dimensions of investment decision-making, however (multiple markets, curves, currency risk, credit risk, sector decisions, etc.), quantitative and computational assistance become quite important in reaching investment decisions that yield acceptable results.

Suggested Citation

  • Roberts L. Grava, 2010. "Practical Scenario-Dependent Portfolio Optimization: A Framework to Combine Investor Views and Quantitative Discipline into Acceptable Portfolio Decisions," Palgrave Macmillan Books, in: Arjan B. Berkelaar & Joachim Coche & Ken Nyholm (ed.), Interest Rate Models, Asset Allocation and Quantitative Techniques for Central Banks and Sovereign Wealth Funds, chapter 9, pages 178-188, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-25129-8_9
    DOI: 10.1057/9780230251298_9
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