Portfolio Construction
Preface
Structure of the book
Software information and conventions
Acknowledgments
Prerequisites
1
Introduction
1.1
Motivation
1.2
Get started
1.3
Some tips
2
Portfolio basics
2.1
Return
2.1.1
Stylized facts
2.1.2
Portfolio return
2.2
Heuristic portfolios
2.2.1
Buy & Hold | Buy & Rebalance
2.2.2
Equally weighted portfolio (EWP)
2.2.3
Quintile portfolio
2.2.4
Global maximum return portfolio (GMRP)
2.3
Comparison
2.4
Model
2.4.1
Markowitz 1952 model (i.i.d. model)
2.4.2
Factor model
2.4.3
Time-series models:
2.4.4
Fitting method
2.4.5
Comment
3
Machine learning basics
4
Portfolio optimization
4.1
Mean-variance portfolio
4.1.1
Practical constraints
4.2
Maximum Sharpe ratio portfolio (MSRP)
4.3
Risk based portfolio
4.3.1
Global minimum variance portfolio (GMVP)
4.3.2
Inverse volatility portfolio (IVP)
4.3.3
Risk parity portfolio (RPP) or equal risk portfolio (ERP)
4.3.4
Most diversified portfolio (MDP)
4.3.5
Maximum decorrelation portfolio (MDCP)
4.4
Comparison
4.5
Rebalancing frequencies
4.6
TODO
5
Factor investing
5.1
Factor overview
5.2
Macroeconomic factor
5.2.1
LS fitting – simple form
5.2.2
LS fitting – matrix form
5.2.3
Estimating covriacne
5.2.4
Evaluating ETFs performance
5.3
Fama-French
5.4
Statistical/principal factor models
5.5
Comparison of covariance matrix estimations
5.6
Edhec smart beta
6
Robust portfolio design
6.1
Motivation
6.2
Sensitivity of different portfolio design
6.2.1
Global Maximum Return Portfolio (GMRP)
6.2.2
Global Minimum Variance Portfolio (GMVP)
6.2.3
Markowitz’s mean-variance portfolio
6.3
Robust portfolio optimization
6.3.1
Worst-case robust GMRP
6.3.2
Worst-case robust GMVP
6.3.3
Worst-case Markowitz’s portfolio
6.3.4
Variance uncertainty based on factor model
7
Alternative risk measure
7.1
Motivation
7.2
Risk measure
7.3
Alternative risk measure beased portfolio
7.3.1
Mean-downside risk portfolio
7.3.2
Mean-CVaR portfolio
7.3.3
Mean-DD portfolio
7.3.4
Mean - Ave-DD portfolio
7.3.5
Mean-CDaR portfolio
7.4
Comparison of DR, CVaR, and DD portfolios
7.5
Conclusion
8
Risk parity portfolio
8.1
Motivation
8.2
Formulation
8.3
Risk budgeting portfolio (RBP)
8.3.1
Inverse volatility portfolio
8.3.2
RPP: General formulation
8.3.3
RBP formulations
Appendix
A
Appendix A
B
Appendix B
References
Published with bookdown
Portfolio Construction
Chapter 3
Machine learning basics
We describe our methods in this chapter.