Portfolio Optimization: Revolutionizing Risk Assessment Systems

Blu Putnam, Graham McDannel and Veenit Shah

Chapter 11 in Economics Gone Astray, 2019, pp 131-148 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Challenges to optimization abound in the world of portfolio construction and financial risk assessment. While financial optimization theory is highly sophisticated, with detailed attention paid to model construction and critical assumptions, the current state of practice leaves much to be desired, and may best be described as a patchwork quilt held together by band aids or the ubiquitous duct tape. On the horizon, however, are some potential improvements in the analytical techniques underpinning how optimization methods are used in both portfolio construction and financial risk management. From the promise of exhaustive searches using quantum computers to the advances in pattern recognition available through structured machine learning, financial optimization methods are about to get a major makeover. Change may be coming, and it’s about time!…

Keywords: Economics; Macroeconomics; Monetary Policy; Fiscal Policy; Inflation; Risk Management; Federal Reserve; Quantitative Easing; Taylor Rule (search for similar items in EconPapers)
JEL-codes: E02 E44 E52 E6 G32 (search for similar items in EconPapers)
Date: 2019
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