Focusing on the worst state for robust investing

WC Kim, JH Kim, JM Mulvey, FJ Fabozzi - International Review of Financial …, 2015 - Elsevier
Despite its shortcomings, the Markowitz model remains the norm for asset allocation and
portfolio construction. A major issue involves sensitivity of the model's solution to its input
parameters. The prevailing approach employed by practitioners to overcome this problem is
to use worst-case optimization. Generally, these methods have been adopted without
incorporating equity market behavior and we believe that an analysis is necessary.
Therefore, in this paper, we present the importance of market information during the worst …
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