Monte Carlo and Portfolio Optimization
This seems like two different issues to me. Putting a limit on the maximum weight of the assets should alleviate the concentration that you are worried about. The POP User's Manual (on http://www.burns-stat.com) has a very brief section on resampling with a couple of references, but for on-line resources I suspect that googling for 'resampled efficient frontier' would be a good move. The POP manual is probably more useful as background for optimization in general than for information on resampling. Patrick Burns patrick at burns-stat.com +44 (0)20 8525 0696 http://www.burns-stat.com (home of S Poetry and "A Guide for the Unwilling S User")
Silvia Marelli wrote:
Hi, I am trying to build some realistic efficient portfolios using some mean/variance techniques (Markowitz, CAPM etc...). I normally end up with an unrealistic concentration of the wealth in a too limited number of assets. I heard about Monte Carlo techniques to account for the unaccuracy of the information available. What would be a good starting point? I am not experienced, so I need to keep it as simple as possible. Should I simply optimize many ptfs, by sampling the return of each asset from a distribution which I assume to be a Gaussian centered on the expected return of the asset? Is it possible to introduce some "noise" also in the covariance matrix? Then how should I "average out" the results? I am not very familiar with these techniques, so if anyone can suggest some online resources, I would be very grateful. Regards Silvia
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