Modern Portfolio Management: From Markowitz to Probabilistic Scenario Optimisation

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The financial markets have undergone a period of distress that has strained the trusted relationship between investors and financial advisors; new regulation has been forged to push for higher levels of transparency and risk-based communication as part of investment decision-making. This has ignited the quest for better portfolio optimisation techniques that can combine the added-value asymmetry of real products (as they strongly contributed to pre-crisis budgets) with the life-cycle requirements of investors, supported by intuitive graphical representation of seemingly complex mathematical relationships between real portfolios and products as required by regulation. Upon reading Modern Portfolio Management, readers will understand the importance of simulating real securities (especially fixed income and structured products) during the making of optimal portfolios, as well as the importance of simulating financial investments over time to match in a transparent way actual goals and constraints instead of relying solely upon past performance or personal judgement. Traditional portfolio management approaches have proven to be ineffective. Probabilistic scenario optimisation is emerging as an appealing alternative framework to facilitate the realignment of investors’ risk/return preferences with the risk/return characteristics of actual investments. Chapters include: A Modern Risk Management Perspective and The Probability Measure Dealing with Real Securities and Reinvestment Strategies: Fixed Income, Structured Products and Inflation Elicitation and Modeling of Risk/Return Time Profiles Review of Markowitz and Black-Litterman approaches Probabilistic Scenario Optimisation and Goal-based Investing Optimisation Case Studies This book is a must-read for portfolio managers as well as financial advisors – in particular, all investment managers engaging in (or thinking of engaging in) long-term and goal-based asset allocations.

Table of Contents

Chapter 1. Beyond Modern Portfolio Theory

PART I: RISK MANAGEMENT FRAMEWORK
Chapter 2. A Modern Risk Management Perspective
Chapter 3. The Probability Measure
Chapter 4. Real Securities and Reinvestment Strategies: Fixed-Income and Inflation-Linked Securities and Structured Products
Chapter 5. Derivation and Modelling of Risk–Return Time Profiles

PART II: PORTFOLIO OPTIMISATION METHODS
Chapter 6. À la Markowitz: A Tale of SimpleWorlds
Chapter 7. The Black–Litterman Approach: A Tale of Subjective Views
Chapter 8. Probabilistic Scenario Optimisation

PART III: PORTFOLIO OPTIMISATION CASE STUDIES
Chapter 9. Case Studies: Mean–Variance and Black–Litterman
Chapter 10. Case Studies: Probabilistic Scenario Optimisation

Book Details

  • Author:
  • Pages: 204 pages
  • Edition: 1
  • Publication Date: 2015-02-16
  • Publisher:
  • Language: English
  • ISBN-10: 1782722041
  • ISBN-13: 9781782722045

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