Exact properties of measures of optimal investment for benchmarked portfolios

John Knight and S. E. Satchell

Quantitative Finance, 2010, vol. 10, issue 5, 495-502

Abstract: We revisit the problem of calculating the exact distribution of optimal investments in a mean variance world under multivariate normality. The context we consider is where problems in optimisation are addressed through the use of Monte-Carlo simulation. Our findings give clear insight as to when Monte-Carlo simulation will, and will not work. Whilst a number of authors have considered aspects of this exact problem before, we extend the problem by considering the problem of an investor who wishes to maximise quadratic utility defined in terms of alpha and tracking errors. The results derived allow some exact and numerical analysis. Furthermore, they allow us to also derive results for the more traditional non-benchmarked portfolio problem.

Keywords: Portfolio analysis; Portfolio theory; Optimization; Advanced econometrics (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (5)

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DOI: 10.1080/14697680903061412

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