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.

Saturday, August 30, 2008

Updates to the akutan project

Talk about open source. I've just spent the last week cleaning up the javadocs for the files in the akutan library. This library contains a bunch of code for portfolio optimization, and some other interesting financial tidbits. It also has an example program/applet which I have on my website, but this is just a demo of the library, it is not a tool for performing asset allocation.

I've been planning on building an Asset Allocation workbench so to speak for some time using the components in the library. I got stuck thinking it should run inside eclipse as a plugin, but realize that was really slowing me down, so it's going to be a good old Swing app which I'm pretty quick at Swing so it'll actually start coming together soon I hope. My long term goal is to put together a pretty respectable tool for asset allocation. We'll see how I do.

On other fronts I continue to work gathering the data to do a study on Black-Litterman and see if I can get to the bottom of tau and the use of the posterior variance. I'm also back to to the entropy diversification paper I wrote some time ago and recently took off my website. I didn't use a really good dataset for the first analysis, and I'm hoping using a better data set with more different assets will give me some more interesting results.

Sunday, August 10, 2008

Open Source Finance

I am a big proponent of Open Source finance, which is roughly the idea that people should be able to reproduce results from finance papers with freely available data. One of my occasion frustrations working the Black-Litterman topic has been authors who won't respond to my requests for clarifications on what they did. Some authors have been quite happy to help and some don't give me the time of day.

Right now I'm going to try and reproduce some of the work in Anisa Salomons thesis in the area of using a posterior variance generated by the Black-Litterman formulas vs just using the prior variance of returns. She notes in her thesis that she saw worse results using an updated variance of returns, but doesn't show the results. Most of the data she used to get her results is freely available on the web and she put her SciLab code into her thesis, so give her a gold star for openness.