Jay's Asset Allocation Blog

Blog about my off-hours work on the problem of Asset Allocation including but not limited to Portfolio Optimization algorithms, algorithms and approaches for improved estimation of Asset Allocation inputs and other potentially related items.

Monday, November 26, 2012

Particle Swarm Optimization

Just been reading a few papers on this topic. I got interested from the book Practical Applications of Evolutionary Computation to Financial Engineering. Turns out there is an open source Java project JSwarm-PSO which is quite easy to fit into a portfolio optimization process. The tricky part is nudging the solution back into the valid solution space when it crosses a constraint. I should be pushing some software up into the akutan project shortly which using JSwarm and then I'll be able to provide some more details.

Monday, June 25, 2012

Update on blacklitterman.org

I am just in the process of working through all the examples posted on the site. I now have python, Excel, Matlab, Scilab and java). They all tie out to 6 digits for the simple He and Litterman example. I will be adding the example from Idzorek's paper next.

I've also been reading some papers, and should be updating the RSS feed in a few days. I like the latest work from Mark Kritzman, et al on turbulence.

In the meantime I am also working on a paper illustrating the use of the Black-Litterman model with a multi-factor model to generate the views. I was a little distracted with a side project to learn python and the pandas library for quantitative work, but in the end decided Matlab or java is the way to go forward.

Saturday, January 15, 2011

Portfolio Optimization with Tracking Error Constraints

An article in May 2010 Financial Analysts Journal revisits Portfolio Optimization with Tracking Error Constraints. The author provides a good discussion of some geometric concepts for visualizing constant tracking error efficient frontiers and constant information ratio frontiers. New ideas for visualizing financial data are something I'm interested in right now, either in the charting or the mathematics.

Monday, January 3, 2011

Visualization and Other Ideas

I am on a bit of kick on visualization of data now. It ranges from clipping interesting art work on asset allocation, performance or risk data; as well as geometric approaches to working with this type of data. I am thinking I'll try and put together a bit of a gallery at some point. I am hoping to include a lecture on this topic for the Financial Informatics class at BU, it seems a pretty natural fit.

Speaking about the class, this semester I think we'll be more hands on with some excel plugins, I'm putting one together from my java analytics using ikvmc and excel-dna, both excellent open source projects, together they make it a piece of cake to put together a really easy to use Excel add-in. When I get it packaged I'll put it up on sourceforge with the rest of my code.

Max Golts has a paper at ssrn, and he's done a few presentations on the topic for the Boston and New York QWAFAFEW groups which have been interesting. One of his thrusts is that if you look at the eigenvectors of the covariance matrix you want to align your asset weights with the more significant ones, rather than the least significant ones. If you're asset allocation lines up with the least significant eigenvectors you are working with the noise. It has taken me far longer than I hoped to understand what he's doing, but I am on track to eventually have some code to implement his approach.

Thursday, September 30, 2010

More insight on Diversification or Lack There of

I recently came across this paper from the folks at PIMCO on diversification and how market regimes. Their thrust is that most assets have significant exposures to global equity factors. During low volatility regimes the returns due to this factor exposure get chalked up to manager expertise, but in fact it's just the unexpected equity factor. During stress regimes the exposure to this global equity factor causes correlations between assets to rise and diversification to fall just when it's needed most. I need some more time to parse it out a bit more, but it seems an interesting approach to the problem of increasing correlations between assets during stress regimes.

Thursday, August 26, 2010

Custom Benchmarks

Went to an interesting talk at the Boston QWAFAFEW meeting by David Kane. It was based on this paper.
The basic thrust was that if you construct random benchmark portfolios with all aspects of the portfolio save for those where the manager claims skill the same, and those aspects where the manager claims skill are randomized across the universe you can see what the manager is really doing.
Of course this requires position level transparency to carry out as just described, but it seems like a powerful technique. If you are going to work with a portfolio where you don't have position level transparency, you could apply a factor model and potentially get similar results.

Tuesday, July 6, 2010

Updated the paper on tau

Ok, my focus is much clearer in the updated version of the document. Definitely quantified the impact of the various reference models and tried to make the concept of tau more clearly defined.

Will publish this to ssrn in the next few days.