Portfolio Construction and Risk Budgeting
First published:
ISBN: 9781782721000
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Introduction
Introduction
Introduction
A Primer on Portfolio Theory
Application in Mean–Variance Investing
Diversification
Frictional Costs of Diversification
Risk Parity
Incorporating Deviations from Normality: Lower Partial Moments
Portfolio Resampling and Estimation Error
Robust Portfolio Optimisation and Estimation Error
Bayesian Analysis and Portfolio Choice
Testing Portfolio Construction Methodologies Out-of-Sample
Portfolio Construction with Transaction Costs
Portfolio Optimisation with Options: From the Static Replication of CPPI Strategies to a More General Framework
Scenario Optimisation
Core–Satellite Investing: Budgeting Active Manager Risk
Benchmark-Relative Optimisation
Removing Long-Only Constraints: 120/20 Investing
Performance-Based Fees, Incentives and Dynamic Tracking Error Choice
Long-Term Portfolio Choice
Risk Management for Asset-Management Companies
Valuation of Asset Management Firms
Tail Risk Hedging
OBJECTIVE
When I went to university you could teach asset management, asset pricing and corporate finance from one corporate finance book. All you needed was a different focus on different chapters. However, understanding asset management as it is practiced today needs an extended knowledge set. Drawing on my involvement in the asset management industry during the last 22 years, this book reviews portfolio construction, risk management, asset owners and their investment problems as well as the business of asset management. Readers receive a well-guided tour that aims to keep the maths accessible.
CONTENT OF THE BOOK
Chapter 1 reviews the theoretical underpinnings of mean variance investing, the use of characteristic portfolios and some rivalling heuristics. Chapter 2 offers various case studies on mean variance investing in particular the introduction of outside shadow assets. In Chapter 3 we focus in much more detail on diversification-based investing, while Chapter 4 extends the topic of diversification by adding frictional diversification costs. Chapter 5 takes an even more focused approach to risk parity investors. We deviate from the mean variance framework by looking more
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