Optimal Portfolio Structure Research Articles

Independent Accountant’s Review Report

Independent Accountant’s Review Report

Independent Auditor’s Report

Independent Auditor’s Report

Devising a fuzzy stakeholder model for optimizing the portfolio of projects at a fishing industrial enterprise taking risks into account

The method for portfolio investment, allowing the formation of the optimal portfolio structure considering degrees of satisfaction of requirements of stakeholder groups, risks and uncertainty of external and internal environment, was proposed. The model that represents a fuzzy nonlinear programming problem was considered. The weighted average of project utility is used as objective function. The utilities of projects are multiplicative Cobb-Douglas type functions using, along with financial indicators, expert verbal evaluations of qualitative indi­cators of satisfaction of stakeholder requirements, converted into fuzzy numbers. Exponents in this function reflect the significance of stake­holders for the organization in terms of the existing resource sharing between a company and a stakeholder and the degree of mutual influ­ence. Quantitative accounting of risks is implemented based on the H. Markowitz approach and the scenario-based method. Uncertainty and lack of information for the indicator of economic efficiency of projects is modeled through the use of the fuzzy approach. Constraints in the model are also fuzzy. The transforming from a fuzzy optimization problem into a crisp problem is performed by assigning the satisfac­tion degrees for an objective function and the constraints. The choice of a certain satisfaction degree also makes it possible to some extent to take into account uncertainty, which, in turn, affects the composition of the portfolio. The solution to the model is found numerically using the proposed method, which allows, based on fuzzy utilities, finding fuzzy objective function and constraints, and transforming a fuzzy model into a crisp quadratic programming problem at specified satisfaction degrees. The example of the formation of an optimal portfolio of investment projects of a fishing industrial enterprise was explored.

Independent Accountant’s Review Report

Independent Accountant’s Review Report

The model of decision-making of high-tech company on the formation of the optimal portfolio. The results of numerical modeling

A model of decision-making of high-tech company on the formation of optimal portfolio structure is considered. In selecting a project among several promising, company takes into account the totality of characteristics like the attractiveness, cost, required personnel, the likelihood of successful implementation and others to launch a new multi-stages innovation project. The model is relevant for high-tech and innovative industries that use multi-stage model of production taking into account the uncertainties that arise in the transition between stages. Numerical results of the formation of optimal portfolios are presented.

Analýza kapitálového trhu pomocí stochastické dominance a vícekriteriální interaktivní metody

Two levels can be identified in the article. The first one is related to a theoretical introduc tion to the known stochastic dominance approach and the interactive multi-objective program ming method; in the second we apply the aforesaid quantita tive approaches to making an optimal port folio struc ture of shares funds. We use the draft of stochastic dominance for a reduction in a relatively huge set of investment opportunities. The application of the stochastic dominance principle is determined by the stochastic character of the studied problem. The yield rate of shares funds is stated as a random variable. We also apply the Monte Carlo method in the invest ment decision-making procedure. For finding an optimal portfolio form, we use the interactive multi-criteria program ming method, the computational algorithm of which is based on maximization of positive deviation from aspiration levels of separate objec tive functions (criteria). Af ter all the proce dures, including successive revision of solutions offered by analysts according to deci sion-maker preferences, we obtain a final portfolio form of shares funds.

The Optimal Investment Policy for the Pension Benefit Guaranty Corporation

The Pension Benefit Guaranty Corporation (PBGC) registers a preoccupying financial condition since 2002. The existing literature has not yet dealt with the definition of the PBGC’s optimal portfolio policy. This paper builds a theoretical framework for defining its optimal asset allocation in a continuous-time stochastic world. We first recognize the PBGC’s put seller nature and derive optimal portfolio rules inspired by the option hedging literature. We then build a model characteristic of any asset-liability manager, like the PBGC or equivalent bodies in other countries, a defined benefit (DB) pension fund or a defined contribution pension fund subject to a guarantee. The model implementation only requires the availability of the given institution’s balance sheets. We propose an application using the PBGC’s reports in the period 1995-2009. The optimal risky asset proportion, composed of the speculative fund and the cash flow and liabilities hedge terms, appears as low, as the second and - especially - third terms exert a downward pressure on the speculative portfolio component. We eventually compare the asset-liability management principles of the PBGC and a DB pension fund and conclude that, though both institutions have a comparable optimal portfolio structure, their asset allocation differs in the effect of the liabilities hedge fund. Due to a different nature of the PBGC’s and DB pension fund’s liabilities, the corresponding hedge fund decreases (increases) the optimal risky asset proportion in the case of the PBGC (DB pension fund).

Методи зниження маркетингових ризиків страхової компанії

Методи зниження маркетингових ризиків страхової компанії

How Variation in Signal Quality Affects Performance

The information coefficient (IC), the correlation between forecasted and realized return, is a popular measure of signal quality. As shown in this article, variation in IC is an important source of active risk, and IC variation has an effect on optimal portfolio structure. Contrary to popular belief, the ability to take short positions in equity portfolios does not necessarily lead to superior performance. Managers who can maintain a stable IC over time will benefit from short extensions, but managers who have an unstable IC may see their performance deteriorate from increased short positions.

The size of venture capital and private equity fund portfolios

We propose a model that examines the optimal size of venture capital and private equity fund portfolios. The relationship between a VC and entrepreneurs is characterized by double-sided moral hazard, which causes the VC to trade off larger portfolios against lower values of portfolio companies. We analyze the structural relations between the VC's optimal portfolio structure and entrepreneurs' and VC's productivities, their disutilities of effort, the value of a successful project, and the required initial investment in a venture. We also test the model's predictions using a small proprietary dataset collected through a survey targeted to VC and private equity funds worldwide.

Exploring the Dimensions of Active Management

The level of active return, the volatility of active return, and the covariance structure of active return are three important dimensions of active management for understanding optimal portfolio structure. An optimal portfolio structure is highly sensitive to various assumptions about the covariance structure of active return; it varies with both the degree of diversification in active returns and the number of unique sources of active return. If the sources of active return are not diversified, investors should make a substantial allocation to risk-controlled active strategies. As there are more separate sources of active return or greater diversification among those sources, the optimal allocation to index strategies and risk-controlled active strategies may be lower. <b>TOPICS:</b>Portfolio construction, equity portfolio management, risk management

Jump-Diffusion International Asset Pricing with Nontraded Consumption Goods

We present a jump-diffusion international asset pricing model with stochastic exchange rates and inflation rates when investors consume both traded and nontraded goods. We argue that in general, the Adler-Dumas inflation rate differential may not fully capture PPP deviation risks, unless all volatilities, drift rates and jumps rates of PPP deviations/excchange rates are constant. The structure of optimal portfolios for investors from different countries reveals that country-specific demand for risky assets can arise from two sources of risks: PPP-deviation risks and nontraded-good-specific inflation-rate-differential risks. Consequently, equilibrium asset returns can be expressed in a multi-beta linear asset pricing model with a number of benchmark portfolios including hedge portfolios for PPP deviation risks and nontraded-good-specific inflation rate risks. The optimal portfolio structure further reveals that even if jump risks were added to otherwise pure diffusion assets in a no-jump world, investors' existing optimal portfolios of risky assets wouldn't change. We also note that risk premia on PPP deviation risks can be positive, zero, or even negative, that in the presence of inflation risks, hedging against exchange rate risks in isolation can sometimes make the investor's real wealth riskier than no hedging at all, and that a global investor optimally increases his consumption in both traded and nontraded goods as the price of the traded good of his own country increases.

Sources of Outperformance in Equity Markets

The general portfolio construction model described here is designed to replicate the first principal component of a group of stocks instead of a traditional benchmark, thus capturing only the common trend in stock returns. Reduction of the noise in stock returns facilitates the replication considerably, and the optimal portfolio structure is very stable. Analysis of the portfolio performance over different time horizons in European and U.S. equity markets reveals a time-varying structure. Throughout most of the period studied, the portfolio’s value component dominated the market and the volatility components, but during the volatile periods of the last few years the strategy earned a significant volatility premium. One explanation for the mean-reversion is behavioral; portfolio performance is influenced by the extent of investor herding toward the common trend in stock returns.

Sources of Over-Performance in Equity Markets: Mean Reversion, Common Trends and Herding

In the field of optimisation models for passive investments, we propose a general portfolio construction model based on principal component analysis. The portfolio is designed to replicate the first principal component of a group of stocks, instead of a traditional benchmark, thus capturing only the common trend in the stock returns. The main advantage of this approach is that the reduction of the noise present in stock returns facilitates the replication task considerably and the optimal portfolio structure is very stable. We analyse the portfolio performance over different time horizons and in different international equity markets. The strategy over-performs both equally weighted and price weighted benchmarks, even after transaction costs. A market premium, a value premium associated with mean reversion in stock returns, and a volatility premium which give the strategy characteristics of a benchmark enhancer, all explain the over-performance, but have time-varying contributions to it. A behavioural explanation for the mean reversion mechanism leads to the conclusion that the portfolio performance is influenced by the extent of investors herding towards the common trend in stock returns.

Sources of Over-Performance in Equity Markets: Mean Reversion, Common Trends and Herding

In the field of optimisation models for passive investments, we propose a general portfolio construction model based on principal component analysis. The portfolio is designed to replicate the first principal component of a group of stocks, instead of a traditional benchmark, thus capturing only the common trend in the stock returns. The main advantage of this approach is that the reduction of the noise present in stock returns facilitates the replication task considerably and the optimal portfolio structure is very stable. We analyse the portfolio performance over different time horizons and in different international equity markets. In the Dow Jones stock universe, the strategy over-performs both equally weighted and price weighted benchmarks, even after transaction costs. The decomposition of the strategy's over-performance into a market premium, a value premium and a volatility premium reveals a time-varying structure. Throughout most of the period studied, the value component dominated the other two, but, during the volatile periods of the last years, the strategy earned a significant volatility premium. A behavioural explanation for the mean reversion mechanism leads to the conclusion that the portfolio performance is influenced by the extent of investors' herding towards the common trend in stock returns.

Dynamic Allocation of Treasury and Corporate Bond Portfolios

In this paper, we solve the intertemporal investment problem of an investor holding a portfolio of default-free and defaultable bonds. Default-risk is modeled in an intensity based framework with state variables following an affine diffusion. The structure of the optimal portfolio over time is investigated and compared to the static mean-variance portfolio. Furthermore, we describe the impact of time varying market prices of risk and interdependencies between interest rates and credit risk on the optimal portfolio structure.