We were recently given a lecture (by Dr. Susan Thomas) on Harry Markowitz portfolio optimization theory, and I was really fascinating with the noble laureate's story of how he found it difficult to convince his guide about the importance of h...

The Omega Ratio was introduced by Keating and Shadwick in 2002. It measures the ratio of average portfolio wins over average portfolio losses for a given target return L. Let x.i, i= 1,…,n be weights of instruments in the portfolio. We suppose that j= 1,…,T scenarios of returns with equal probabilities are available. I will

In the Maximum Loss and Mean-Absolute Deviation risk measures, and Expected shortfall (CVaR) and Conditional Drawdown at Risk (CDaR) posts I started the discussion about alternative risk measures we can use to construct efficient frontier. Another alternative risk measure I want to discuss is Downside Risk. In the traditional mean-variance optimization both returns above and

The “Minimum Correlation Algorithm” is a term I stumbled at the CSS Analytics blog. This is an Interesting Risk Measure that in my interpretation means: minimizing Average Portfolio Correlation with each Asset Class for a given level of return. One might try to use Correlation instead of Covariance matrix in mean-variance optimization, but this approach,

In the last few posts I introduced Maximum Loss, Mean-Absolute Deviation, and Expected shortfall (CVaR) and Conditional Drawdown at Risk (CDaR) risk measures. These risk measures can be formulated as linear constraints and thus can be combined with each other to control multiple risk measures during construction of efficient frontier. Let’s examine efficient frontiers computed