A new asset allocation technique to reduce financial portfolio risk

2011 ◽  
Vol 12 (6) ◽  
pp. 418-425
Author(s):  
Gino Gandolfi ◽  
Antonella Sabatini ◽  
Monica Rossolini
Keyword(s):  
Asset Allocation ◽  
Portfolio Risk ◽  
Financial Portfolio

scholarly journals Application and Comparative Study of Optimization Algorithms in Financial Investment Portfolio Problems

2021 ◽  
Vol 2021 ◽  
pp. 1-10
Author(s):  
Shuai Liu ◽  
Chenglin Xiao
Keyword(s):  
Genetic Algorithm ◽  
Comparative Study ◽  
Capital Markets ◽  
Asset Allocation ◽  
Optimization Algorithms ◽  
Economic Benefits ◽  
Investment Portfolio ◽  
Financial Investment ◽  
Financial Products ◽  
Financial Portfolio

Portfolio theory mainly studies how to optimize the allocation of assets under the premise of maximizing expected returns and minimizing investment risks. In view of the instability of the financial market, a diversified investment portfolio can help control the loss of the investment portfolio. In addition to paying attention to the safety and return of asset allocation, we cannot ignore the liquidity of assets, that is, their liquidity. Adding high-liquidity products to asset allocation, such as equity investment, can better control the financial cash flow in response to emergencies. One of the ways to make assets flow is to securitize assets and sell them to the market. In order to revitalize the stock assets, good investment efficiency is a necessary choice for financial investment. Various financial products and their derivatives continue to enter people’s vision. There are many financial products in reality, and optimizing the investment portfolio can bring high economic benefits. The purpose of this paper is to study the application of optimization algorithms in financial portfolio problems. (1) Monetary policy remains prudent and neutral. It is not easy to expect flooding, but flexibility is required in complex situations. (2) Financial resources are tilted towards innovation and transformation and capital markets, which is beneficial to the development of capital markets in the medium and long term. (3) Unblocking the transmission mechanism is conducive to lenient credit and tapping the wrong killing opportunities in private enterprise debt. (4) Banks and other financial institutions have moderate pressure to give benefits to entities, but in the long run, the interests of the two are consistent. (5) Finance risk prevention will continue, orderly breaking the rigid exchange and reshaping the financial structure and ecology. (6) The pace of opening up of the financial industry has accelerated, and the bond market investor structure has improved. In this paper, we establish different optimization schemes to compare and study the portfolio problem and then use MATLAB to solve the modeling and programming problem, calculate the highest return rate and the lowest risk value before and after optimization, and then make a comparative analysis to get a better optimization scheme. The results show that the genetic algorithm model is superior to the quadratic programming method in terms of risk control. The minimum risk of portfolio optimization through genetic algorithm has been reduced by about 40%, and the maximum return has increased by about 25%. The comprehensive optimization effect is better than the quadratic planning method and ultimately can obtain higher economic benefits. It can be seen that the optimization algorithm is of great significance for the comparative study of financial portfolio problems.

scholarly journals New Formal Description of Expert Views of Black-Litterman Asset Allocation Model

2017 ◽  
Vol 17 (4) ◽  
pp. 87-98 ◽  
Author(s):  
Miroslav Vladimirov ◽  
Todor Stoilov ◽  
Krasimira Stoilova
Keyword(s):  
Asset Allocation ◽  
Asset Management ◽  
Dynamical Behavior ◽  
Stock Exchanges ◽  
Formal Description ◽  
Portfolio Risk ◽  
Allocation Model ◽  
Realistic Assessment ◽  
Complicated Model ◽  
Subjective Views

Abstract The general contribution of this research is the implementation of new formal type of relative view, which has been added to the Black-Litterman Model (BLM) for asset management. It is well known that the BLM integrates both historical data about the assets’ returns and subjective views given by experts and investors. Such complicated model is expected to give more realistic assessment about the dynamical behavior of the stock exchanges. The BLM applies both absolute and relative views about the asset returns. The paper proves that the currently applied relative views with equal weights are equivalent to assess the risk of a virtual portfolio with these assets of the view which participate with equal weights. The paper extends this form of views, applying non-equal weights of the assets. This new formal description has been tested on a market, containing ten world known indices for a 10 years period. The calculations which have been provided give benefits to the suggested non-equal weighted form of subjective views. It gives more conservative results and decreases the portfolio risk supporting the same level of returns, provided by the average market behavior.

Using VIX to Dynamically Hedge Portfolio Risk

GIS Business ◽  
1970 ◽  
Vol 13 (3) ◽  
pp. 15-22
Author(s):  
Richard Cloutier
Keyword(s):  
Asset Allocation ◽  
Market Timing ◽  
Investment Strategy ◽  
Market Risk ◽  
Portfolio Risk ◽  
Dynamic Hedging ◽  
Hedging Strategy ◽  
Tactical Asset Allocation ◽  
Asset Class ◽  
Timing Strategies

Many investors accept buy and hold as their long-term investment strategy. However, during periods of heightened risk, staying disciplined can be problematic. Alternatively, market timing appeals to our emotions but is very difficult to employ successfully. Between these two extremes lies tactical asset allocation, where limited variances are allowed to take advantage of market conditions. Dynamic hedging is a form of tactical asset allocation. Instead of relying on future predictions of asset class returns, dynamic hedging strives to reduce portfolio risk when market risk is elevated. This paper presents a dynamic hedging strategy developed to accomplish this goal. It uses VIXs normal trading range to assess market risk. When VIX trades above its normal trading range and the upper Bollinger band, the dynamic hedging strategy is applied. The result is that portfolio risk is lowered when market risk is extreme. The application of this strategy provides better returns, lower volatility, and better downside protection than a strategic buy and hold allocation. It also avoids the deployment problems associated with market timing strategies.

The emergence of Spanish REITs

2018 ◽  
Vol 36 (5) ◽  
pp. 495-508 ◽  
Author(s):  
Muhammad Jufri Marzuki ◽  
Graeme Newell
Keyword(s):  
Asset Allocation ◽  
Investment Decision ◽  
Portfolio Diversification ◽  
Portfolio Risk ◽  
Property Market ◽  
Content Type ◽  
Investment Decision Making ◽  
Strategic Role ◽  
Asset Portfolio

PurposeSpanish real estate investment trusts (REITs) emerged as an important and rapidly expanding property investment vehicle, against the backdrop of improving Spain macro-economic fundamentals and commercial property market. This sees Spanish REITs being the 3rd largest REIT market in Europe, offering access to important Iberian and European property assets, with the added benefits of transparency, governance and liquidity. The purpose of this paper is to assess the significance, risk-adjusted performance and portfolio diversification benefits of Spanish REITs in a mixed-asset portfolio over August 2014–February 2018.Design/methodology/approachUsing monthly total returns, the risk-adjusted performance and portfolio diversification potential of Spanish REITs over August 2014–February 2018 are assessed. Asset allocation diagrams are used to assess the role of Spanish REITs in a mixed-asset portfolio.FindingsSpanish REITs delivered strong risk-adjusted returns compared to stocks over August 2014–February 2018, but with limited portfolio diversification benefits. Compared to bonds, Spanish REITs offered competitive risk-adjusted returns and excellent diversification benefits. Importantly, this sees Spanish REITs as strongly contributing to the Spanish mixed-asset portfolio across the portfolio risk spectrum.Practical implicationsThe 2012 Spanish REIT regulatory changes have been pivotal in providing a supportive environment for Spanish REITs’ growth. Spanish REITs are now a significant market in a European context. The results highlight the major role of Spanish REITs in a Spanish mixed-asset portfolio. The strong risk-adjusted performance of Spanish REITs compared to stocks sees Spanish REITs contributing to the mixed-asset portfolio across the portfolio risk spectrum. This is particularly important, as an increasing number of investors have utilised Spanish REITs to obtain their property exposure in a liquid format in recent years.Originality/valueThis paper is the first published empirical research analysis of the risk-adjusted performance of Spanish REITs, and the role of Spanish REITs in a mixed-asset portfolio. This research enables empirically validated, more informed and practical property investment decision-making regarding the strategic role of Spanish REITs in a portfolio.

Can Asset Allocation Limits Determine Portfolio Risk-Return Profiles in DC Pension Schemes?

2018 ◽  
Author(s):  
Tomás Gutierrez ◽  
Bernardo Pagnoncelli ◽  
Davi Valladão ◽  
Arturo Cifuentes
Keyword(s):  
Asset Allocation ◽  
Portfolio Risk ◽  
Risk Return ◽  
Pension Schemes

scholarly journals Macro Asset Allocation with Social Impact Investments

2019 ◽  
Vol 11 (11) ◽  
pp. 3140 ◽  
Author(s):  
Massimo Biasin ◽  
Roy Cerqueti ◽  
Emanuela Giacomini ◽  
Nicoletta Marinelli ◽  
Anna Grazia Quaranta ◽  
...  
Keyword(s):  
Risk Aversion ◽  
Asset Allocation ◽  
Social Impact ◽  
Large Fraction ◽  
Stock Index ◽  
Portfolio Risk ◽  
Risk Return ◽  
Mean Variance ◽  
Different Levels ◽  
Unique Dataset

Using a unique dataset of 50 listed companies that meet the majority of the OECD requirements for social impact investments, we construct a social impact finance stock index and investigate how investing in social impact firms can contribute to portfolio risk-return performance. We build portfolios with three different methodologies (naïve, Markowitz mean-variance optimization, GARCH-copula model), and we study the performance in terms of returns, Sharpe ratio, utility, and forecast premium based on a constant relative risk aversion function for investors with different levels of risk aversion. Consistent with the idea that social impact investment can improve portfolio risk-return performance, the results of our macro asset allocation analysis show the importance of a large fraction of investor portfolios’ stake committed to social impact investments.

scholarly journals Profitability and risk ratio of financial portfolio

2012 ◽  
Vol 48 (No. 3) ◽  
pp. 117-120
Author(s):  
I. Boháčková ◽  
L. Svatošová
Keyword(s):  
Primary Production ◽  
Risk Ratio ◽  
Theoretical Basis ◽  
Portfolio Risk ◽  
Financial Investment ◽  
Mutual Dependence ◽  
Reduce Risk ◽  
Financial Portfolio ◽  
Food Complex

Financial portfolio represents a certain type of investments diversification and hence it issues a possibility how to reduce risk ratio and to ensure a sufficient profitability of financial investment. The paper shows ways of calculation and evaluation of investment possibilities. A base for the determination of the efficiency of portfolio particular parts is a rate of efficiency of particular securities and their weight (representation) in the portfolio. Risk of an investment action is linked to the results of the technical analysis of particular securities and of the mutual dependence among them, resp. of their mutual ability to influence each other. The contribution is worked out on a theoretical basis, nevertheless, the procedure can be applied easily to the investment possibility in the area of securities. It cannot be used in enterprises of agricultural primary production but it can be applied in the dimension of the agri-food complex, respectively in the agri-business dimension.

The emergence and performance of German REITs

2018 ◽  
Vol 36 (1) ◽  
pp. 91-103 ◽  
Author(s):  
Graeme Newell ◽  
Muhammad Jufri Marzuki
Keyword(s):  
Asset Allocation ◽  
Global Financial Crisis ◽  
Investment Decision ◽  
Efficient Frontier ◽  
Portfolio Diversification ◽  
Portfolio Risk ◽  
Content Type ◽  
Property Companies ◽  
Asset Portfolio

Purpose German real estate investment trusts (REITs) are a small but important property investment vehicle in the European REIT landscape, offering German commercial property investment exposure in a liquid format, compared to the more property development-focused German listed property companies and the popular German open-ended property funds. The purpose of this paper is to assess the emergence of the German REIT market and the risk-adjusted performance and portfolio diversification benefits of German REITs in a mixed-asset portfolio over 2007-2015. The post-global financial crisis (GFC) recovery of German REITs is highlighted. Enabling strategies for the ongoing development of the German REIT market are also identified. Design/methodology/approach Using monthly total returns, the risk-adjusted performance and portfolio diversification benefits of German REITs over 2007-2015 are assessed. Efficient frontier and asset allocation diagrams are used to assess the role of German REITs (and German property companies) in a mixed-asset portfolio. Sub-period analysis is used to assess the post-GFC recovery of German REITs. Findings German REITs delivered lesser risk-adjusted returns compared to German stocks over 2007-2015, with limited portfolio diversification benefits. However, since the GFC, German REITs have delivered strong risk-adjusted returns, but with continued limited portfolio diversification benefits with German stocks. German REITs also out-performed German property companies. Importantly, this sees German REITs as strongly contributing to the German mixed-asset portfolio across the portfolio risk spectrum in the post-GFC environment. Practical implications German REITs are a small but important market at a local, European and global REIT level. The results highlight the major role of German REITs in a German mixed-asset portfolio in the post-GFC context. The strong risk-adjusted performance of German REITs compared to German stocks sees German REITs contributing to the mixed-asset portfolio across the portfolio risk spectrum. This is particularly important, as many investors (e.g. small pension funds) use German REITs (and German listed property companies) to obtain their German property exposure in a liquid format, as well as the increased importance of blended property portfolios of listed property and direct property. Originality/value This paper is the first published empirical research analysis of the risk-adjusted performance of German REITs, and the role of German REITs as a listed property vehicle in a mixed-asset portfolio. This research enables empirically validated, more informed and practical property investment decision making regarding the strategic role of German REITs in a portfolio.

The significance and performance of UK-REITs in a mixed-asset portfolio

2016 ◽  
Vol 9 (2) ◽  
pp. 171-182 ◽  
Author(s):  
Graeme Newell ◽  
Muhammad Jufri Bin Marzuki
Keyword(s):  
Asset Allocation ◽  
Global Financial Crisis ◽  
Investment Decision ◽  
Efficient Frontier ◽  
Portfolio Diversification ◽  
Defined Contribution ◽  
Portfolio Risk ◽  
Content Type ◽  
Asset Portfolio

Purpose UK-Real Estate Investment Trusts (REITs) are an important property investment vehicle, being the fourth largest REIT market globally. The purpose of this paper is to assess the significance, risk-adjusted performance and portfolio diversification benefits of UK-REITs in a mixed-asset portfolio over 2007−2014. The post-global financial crisis (GFC) recovery of UK-REITs is highlighted. Design/methodology/approach Using total monthly returns, the risk-adjusted performance and portfolio diversification benefits of UK-REITs over 2007–2014 are assessed. Efficient frontier and asset allocation diagrams are used to assess the role of UK-REITs in a mixed-asset portfolio. Sub-period analysis is used to assess the post-GFC recovery of UK-REITs. Findings UK-REITs delivered poor risk-adjusted returns compared to UK stocks over 2007–2014 with limited portfolio diversification benefits. However, since the GFC, UK-REITs have delivered strong risk-adjusted returns, but with continued limited portfolio diversification benefits with UK stocks. Importantly, this sees UK-REITs as strongly contributing to the UK mixed-asset portfolio across the portfolio risk spectrum in the post-GFC environment. Practical implications UK-REITs are a significant market at a European and global REIT level. The results highlight the major role of UK-REITs in a UK mixed-asset portfolio in the post-GFC context. The strong risk-adjusted performance of UK-REITs compared to UK stocks sees UK-REITs contributing to the mixed-asset portfolio across the portfolio risk spectrum. This is particularly important, as many investors (e.g. small pension funds, defined contribution [DC] funds) use UK-REITs to obtain their property exposure in a liquid format, as well as the increased importance of blended property portfolios of listed property and direct property. Originality/value This paper is the first published empirical research analysis of the risk-adjusted performance of UK-REITs and the role of UK-REITs in a mixed-asset portfolio. This research enables empirically validated, more informed and practical property investment decision-making regarding the strategic role of UK-REITs in a portfolio.

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