Dynamic Asset Allocation With Horizon Risk
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Author | : Peter Mladina |
Publisher | : |
Total Pages | : |
Release | : 2017 |
Genre | : |
ISBN | : |
We compare the empirical distributions of equity and fixed-income returns at different time horizons and find that the risk of equities relative to fixed income is more acute at short time horizons than long time horizons, confirming previous research. This creates the opportunity to develop a dynamic asset allocation process that exploits the reduced horizon risk of equities relative to fixed income. We highlight key data on changing relative risk with time and leverage this information to introduce methods and concepts that inform glide path construction -- the building blocks for a dynamic asset allocation process that can support lifecycle, target date retirement, and goals-based investing frameworks.
Author | : Richard E. Oberuc |
Publisher | : McGraw Hill Professional |
Total Pages | : 344 |
Release | : 2004 |
Genre | : Business & Economics |
ISBN | : 9780071426695 |
Author | : Abraham Lioui |
Publisher | : |
Total Pages | : 53 |
Release | : 2016 |
Genre | : |
ISBN | : |
We provide a new portfolio decomposition formula that sheds light on the economics of portfolio choice for investors following the mean-variance (MV) criterion. We show that the number of components of a dynamic portfolio strategy can be reduced to two: the first is preference free and hedges the risk of a discount bond maturing at the investor's horizon while the second hedges the time variation in pseudo relative risk tolerance. Both components entail strong horizon effects in the dynamic asset allocation as a result of time-varying risk tolerance and investment opportunity sets. We also provide closed-form solutions for the optimal portfolio strategy in the presence of market return predictability. The model parameters are estimated over the period 1963 to 2012 for the U.S. market. We show that:(i) intertemporal hedging can be very large, (ii) the MV criterion hugely understates the true extent of risk aversion for high values of the risk aversion parameter, and the more so the shorter the investment horizon and, (iii) the efficient frontiers seem problematic for investment horizons shorter than one year but satisfactory for large horizons. Overall, adopting the MV model leads to acceptable results for medium and long term investors endowed with medium or high risk tolerance, but to very problematic ones otherwise.
Author | : Adam Butler |
Publisher | : John Wiley & Sons |
Total Pages | : 244 |
Release | : 2016-02-02 |
Genre | : Business & Economics |
ISBN | : 1119220394 |
Build an agile, responsive portfolio with a new approach to global asset allocation Adaptive Asset Allocation is a no-nonsense how-to guide for dynamic portfolio management. Written by the team behind Gestaltu.com, this book walks you through a uniquely objective and unbiased investment philosophy and provides clear guidelines for execution. From foundational concepts and timing to forecasting and portfolio optimization, this book shares insightful perspective on portfolio adaptation that can improve any investment strategy. Accessible explanations of both classical and contemporary research support the methodologies presented, bolstered by the authors' own capstone case study showing the direct impact of this approach on the individual investor. Financial advisors are competing in an increasingly commoditized environment, with the added burden of two substantial bear markets in the last 15 years. This book presents a framework that addresses the major challenges both advisors and investors face, emphasizing the importance of an agile, globally-diversified portfolio. Drill down to the most important concepts in wealth management Optimize portfolio performance with careful timing of savings and withdrawals Forecast returns 80% more accurately than assuming long-term averages Adopt an investment framework for stability, growth, and maximum income An optimized portfolio must be structured in a way that allows quick response to changes in asset class risks and relationships, and the flexibility to continually adapt to market changes. To execute such an ambitious strategy, it is essential to have a strong grasp of foundational wealth management concepts, a reliable system of forecasting, and a clear understanding of the merits of individual investment methods. Adaptive Asset Allocation provides critical background information alongside a streamlined framework for improving portfolio performance.
Author | : |
Publisher | : |
Total Pages | : |
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This paper provides an analytical framework for dynamic portfolio strategies that are mean-variance efficient and subjected to a principal-guaranteed rate. Specifying a numeraire known as growth-optimal portfolio, we apply martingale method instead of dynamic programming approach to solve the optimal problem. Under the general assumptions of the price dynamics being a semi-martingale with finite expectation and variance, the efficient strategies are identified as a combination of put options on minimum norm portfolio and zero coupon bonds with the maturity of investment horizon. In the case of a single factor interest rate model, we derive the closed-form formula for optimal weights on securities. We conduct numerical simulations to illustrate the performance of the optimal strategies in the case of an economy comprising a stock index fund, a bond index fund and a money market account. In addition, for different investors with various interests like principal guaranted rate and investment horizon, we also show how investors ought to allocate their funds.
Author | : Abraham Lioui |
Publisher | : Springer Science & Business Media |
Total Pages | : 290 |
Release | : 2005-03-30 |
Genre | : Business & Economics |
ISBN | : 9780387241074 |
This is an advanced text on the theory of forward and futures markets which aims at providing readers with a comprehensive knowledge of how prices are established and evolve over time, what optimal strategies one can expect from the participants, what characterizes such markets and what major theoretical and practical differences distinguish futures from forward contracts. It should be of interest to students (majoring in finance with quantitative skills) academics (both theoreticians and empiricists), practitioners, and regulators.
Author | : David A. Hammer |
Publisher | : |
Total Pages | : 362 |
Release | : 1991-04-25 |
Genre | : Business & Economics |
ISBN | : |
Includes an examination of traditional asset allocation methods, why they do and do not work, and which elements can be used in overseeing the professional's own portfolio. In addition, the author introduces his own proven method of portfolio management and asset allocation strategies--the ``7-Step System''--using simple statistical techniques to forecast stock, bond, commodity, and money market returns. Free of complex mathematics, charts, graphs, and technical jargon, this is a highly readable guide to getting the most from today's sophisticated investment techniques.
Author | : William Kinlaw |
Publisher | : John Wiley & Sons |
Total Pages | : 259 |
Release | : 2017-05-22 |
Genre | : Business & Economics |
ISBN | : 1119397804 |
Since the formalization of asset allocation in 1952 with the publication of Portfolio Selection by Harry Markowitz, there have been great strides made to enhance the application of this groundbreaking theory. However, progress has been uneven. It has been punctuated with instances of misleading research, which has contributed to the stubborn persistence of certain fallacies about asset allocation. A Practitioner's Guide to Asset Allocation fills a void in the literature by offering a hands-on resource that describes the many important innovations that address key challenges to asset allocation and dispels common fallacies about asset allocation. The authors cover the fundamentals of asset allocation, including a discussion of the attributes that qualify a group of securities as an asset class and a detailed description of the conventional application of mean-variance analysis to asset allocation.. The authors review a number of common fallacies about asset allocation and dispel these misconceptions with logic or hard evidence. The fallacies debunked include such notions as: asset allocation determines more than 90% of investment performance; time diversifies risk; optimization is hypersensitive to estimation error; factors provide greater diversification than assets and are more effective at reducing noise; and that equally weighted portfolios perform more reliably out of sample than optimized portfolios. A Practitioner's Guide to Asset Allocation also explores the innovations that address key challenges to asset allocation and presents an alternative optimization procedure to address the idea that some investors have complex preferences and returns may not be elliptically distributed. Among the challenges highlighted, the authors explain how to overcome inefficiencies that result from constraints by expanding the optimization objective function to incorporate absolute and relative goals simultaneously. The text also explores the challenge of currency risk, describes how to use shadow assets and liabilities to unify liquidity with expected return and risk, and shows how to evaluate alternative asset mixes by assessing exposure to loss throughout the investment horizon based on regime-dependent risk. This practical text contains an illustrative example of asset allocation which is used to demonstrate the impact of the innovations described throughout the book. In addition, the book includes supplemental material that summarizes the key takeaways and includes information on relevant statistical and theoretical concepts, as well as a comprehensive glossary of terms.
Author | : Eirik Dahle |
Publisher | : |
Total Pages | : 151 |
Release | : 2011 |
Genre | : |
ISBN | : |
Horizon e ect where investors tend to increase their stock holdings for longer investment horizons as well as the increasing stock allocation for more risk tolerant investors. Finally, the thesis showed the bene ts of generalizing the simple model using the Kalman lter. The optimal portfolio strategy resulting from the extended setup had a greatly reduced allocation variability as the investor became more reluctant to adapt her market view to new information. Based on these ndings the study concluded that dynamic asset allocation modeling is an interesting opportunity for institutional investors and that the generalized model presented herein can be seen as one potential way to make such models practically feasible.
Author | : John Y. Campbell |
Publisher | : Clarendon Lectures in Economic |
Total Pages | : 280 |
Release | : 2002 |
Genre | : Asset allocation |
ISBN | : 9780198296942 |
This volume provides a scientific foundation for the advice offered by financial planners to long-term investors. Based upon statistics on asset return behavior and assumed investor objectives, the authors derive optimal portfolio rules that investors can compare with existing rules of thumb.