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This paper presents how the most recent improvements made on covariance matrix estimation and model order selection can be applied to the portfolio optimisation problem. The particular case of the Maximum Variety Portfolio is treated but the same improvements apply also in the other optimisation...
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Many financial decisions such as portfolio allocation, risk management, option pricing and hedge strategies are based on the forecast of the conditional variances, covariances and correlations of financial returns. Although the decisions are based on forecasts covariance matrix little is known...
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It is well known that estimated mean-variance portfolios deliver, on average, poor out-of-sample performance. A lesser-known fact that we characterize in this paper is that their out-of-sample performance is also very volatile. Using our analytical characterization of out-of-sample performance...
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Portfolio selection is often faced with large noisy data sets of strongly correlated asset returns, and so is prone to unstable portfolio weights and serious estimation error. To attenuate these problems, this paper proposes a new latent factor model equipped with both a suitable robust...
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