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, 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.