Portfolio Optimization

I Discuss aspects of PO, including the Efficient

Frontier, Capital Allocation Line, Modern Portfolio

Theory and Portfolio Correlation.

II Discuss how LTCMs Portfolio Optimization went

wrong, including the portfolios correlation factor.
III Discuss Portfolio Optimization and some problems
associated with it.
IV Contrast a simpler alternative to more elaborate
strategies while producing more consistent
performance

Ia

http://www.creativewealthstrategies.com/Modern_Portfolio_Theory.doc

Ib

Ic

The Efficient Frontier for S&P 100

http://www.nag.co.uk/doc/TechRep/Pdf/tr2_00.pdf

Id

http://www.moneychimp.com/articles/valuation/capm.htm

Ie

http://en.wikipedia.org/wiki/File:Markowitz_frontier.jpg

Efficient Frontier.
If

Portfolio Optimization with two assets

Corporate Bond Treasury

Risk-free

Optimal Portfolio

Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk, Philippe Jorion,
pps 557-563

II a

Portfolio Optimization

Capital Allocation Line

The Efficient Frontier

Corporate Bond
Treasury Bond

II b

Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk,
Philippe Jorion, pps 557-563

www.indexfundeducator.com
II c

www.indexfundeducator.com
II d

www.indexfundeducator.com
II e

Risk and the Number of Securities

Risk (% pa)

Number of Securities

Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial
Risk, Philippe Jorion, pps 557-563

II f

Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk,
Philippe Jorion, pps 557-563

II g

default-rate volatility

Moodys Investor Services, Alexandra Berthault

II h

III a

http://www.travismorien.com/FAQ/portfolios/mptcriticism.htm

IV a

IV b

Passive Investing Produces Better

Returns Over Time

IV c

The business schools reward difficult complex behavior more than simple
behavior, but simple behavior is more effective. - Warren Buffett

http://www.travismorien.com/FAQ/portfolios/mptcriticism.htm

IV d

To summarize:
Optimum portfolio is where
Efficient frontier meets the CAL

http://www.moneychimp.com/articles/valuation/capm.htm

Lessons learned from LTCM

Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk,
Philippe Jorion, pps 557-563

MPT Not Realistic

http://www.travismorien.com/FAQ/portfolios/mptcriticism.htm

Passive Investing Produces Better

Returns Over Time

Thank you