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9780470164891

Robust Portfolio Optimization and Management

by ; ; ;
  • ISBN13:

    9780470164891

  • ISBN10:

    0470164891

  • Format: eBook
  • Copyright: 2007-08-01
  • Publisher: Wiley
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Summary

Praise for Robust Portfolio Optimization and Management "In the half century since Harry Markowitz introduced his elegant theory for selecting portfolios, investors and scholars have extended and refined its application to a wide range of real-world problems, culminating in the contents of this masterful book. Fabozzi, Kolm, Pachamanova, and Focardi deserve high praise for producing a technically rigorous yet remarkably accessible guide to the latest advances in portfolio construction." -Mark Kritzman, President and CEO, Windham Capital Management, LLC "The topic of robust optimization (RO) has become 'hot' over the past several years, especially in real-world financial applications. This interest has been sparked, in part, by practitioners who implemented classical portfolio models for asset allocation without considering estimation and model robustness a part of their overall allocation methodology, and experienced poor performance. Anyone interested in these developments ought to own a copy of this book. The authors cover the recent developments of the RO area in an intuitive, easy-to-read manner, provide numerous examples, and discuss practical considerations. I highly recommend this book to finance professionals and students alike." -John M. Mulvey, Professor of Operations Research and Financial Engineering, Princeton University

Table of Contents

Preface
About the Authors
Introduction
Quantitative Techniques in the Investment Management Industry
Central Themes of This Book
Overview of This Book
Portfolio Allocation: Classical Theory and Extensions
Mean-Variance Analysis and Modern Portfolio Theory
The Benefits of Diversification
Mean-Variance Analysis: Overview
Classical Framework for Mean-Variance Optimization
The Capital Market Line
Selection of the Optimal Portfolio When There Is a Risk-Free Asset
More on Utility Functions: A General Framework for Portfolio Choice
Summary
Advances in the Theory of Portfolio Risk Measures
Dispersion and Downside Measures
Portfolio Selection with Higher Moments through Expansions of Utility
Polynomial Goal Programming for Portfolio Optimization with Higher Moments
Some Remarks on the Estimation of Higher Moments
The Approach of Malevergne and Sornette
Summary
Portfolio Selection in Practice
Portfolio Constraints Commonly Used in Practice
Incorporating Transaction Costs in Asset-Allocation Models
Multiaccount Optimization
Summary
Robust Parameter Estimation
Classical Asset Pricing
Definitions
Theoretical and Econometric Models
Random Walk Models
General Equilibrium Theories
Capital Asset Pricing Model (CAPM)
Arbitrage Pricing Theory (APT)
Summary
Forecasting Expected Return and Risk
Dividend Discount and Residual Income Valuation Models
The Sample Mean and Covariance Estimators
Random Matrices
Arbitrage Pricing Theory and Factor Models
Factor Models in Practice
Other Approaches to Volatility Estimation
Application to Investment Strategies and Proprietary Trading
Summary
Robust Estimation
The Intuition behind Robust Statistics
Robust Statistics
Robust Estimators of Regressions
Confidence Intervals
Summary
Robust Frameworks for Estimation: Shrinkage, Bayesian Approaches, and the Black-Litterman Model
Practical Problems Encountered in Mean-Variance Optimization
Shrinkage Estimation
Bayesian Approaches
Summary
Optimization Techniques
Mathematical and Numerical Optimization
Mathematical Programming
Necessary Conditions for Optimality for Continuous Optimization Problems
Optimization Duality Theory
How Do Optimization Algorithms Work?
Summary
Optimization under Uncertainty
Stochastic Programming
Dynamic Programming
Robust Optimization
Summary
Implementing and Solving Optimization Problems in Practice
Optimization Software
Practical Considerations When Using Optimization Software
Implementation Examples
Specialized Software for Optimization Under Uncertainty
Summary
Robust Portfolio Optimization
Robust Modeling of Uncertain Parameters in Classical Mean-Variance Portfolio Optimization
Portfolio Resampling Techniques
Robust Portfolio Allocation
Some Practical Remarks on Robust Portfolio Allocation Models
Summary
The Practice of Robust Portfolio Management: Recent Trends and New Directions
Some Issues in Robust Asset Allocation
Portfolio Rebalancing
Understanding and Modeling Transaction Costs
Table of Contents provided by Publisher. All Rights Reserved.

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