FAST METHODS FOR LARGE-SCALE NON-ELLIPTICAL PORTFOLIO OPTIMIZATION

Marc S. Paolella ()
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Marc S. Paolella: Swiss Banking Institute, University of Zurich, Switzerland;

Annals of Financial Economics (AFE), 2014, vol. 09, issue 02, 1-32

Abstract: Simple, fast methods for modeling the portfolio distribution corresponding to a non-elliptical, leptokurtic, asymmetric, and conditionally heteroskedastic set of asset returns are entertained. Portfolio optimization via simulation is demonstrated, and its benefits are discussed. An augmented mixture of normals model is shown to be superior to both standard (no short selling) Markowitz and the equally weighted portfolio in terms of out of sample returns and Sharpe ratio performance.

Keywords: Expected shortfall; GARCH; mixture distributions; portfolio allocation; shrinkage estimation; simulation; weighted likelihood; C51; C53; G11; G17 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1142/S2010495214400016

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