When assets' expected returns follow a factor structure subject to pricing errors, we show that the mean-variance portfolio can be used to obtain a set of implied factor risk premia. Contrary to the instability of the mean-variance asset portfolio, we show that such implied factor risk premia...

Here we look at alternative equity index weightings to ‘Market Capitalisation Weighting' to see whether the expected theoretical improvement given by Portfolio Optimisation Techniques are realised in practice. We introduce a new portfolio weighting measure, called ‘Constrained Inverse Beta',...

In this paper the set of all second-order stochastic dominance (SSD) efficient portfolios is characterized by using a series of mixed-integer linear constrains. Our derivation employs a combination of the first-order conditions of the utility maximization problem together with a judicious use of...

In this paper we propose a quasi-shrinkage approach for minimum-variance portfolios which does not use a quadratic loss function to derive the optimal shrinkage intensity. We develop two alternative objective functions for linear shrinkage. The first targets the reduction of portfolio variance....

We define a regularized variant of the Dual Dynamic Programming algorithm called REDDP (REgularized Dual Dynamic Programming) to solve nonlinear dynamic programming equations. We extend the algorithm to solve nonlinear stochastic dynamic programming equations. The corresponding algorithm, called...

Allocation between factor portfolios can bring significant advantages over traditional portfolio optimization performed among individual assets or asset classes. One such advantage is a substantial dimension reduction when one's attention turns from many assets to few factors. This, however,...