Efficient portfolio frontiers with allocation constraints (Excel)
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- Опубликовано: 23 ноя 2022
- It is very common for unconstrained efficient portfolio frontiers to recommend sizeable short positions or unrealistically high exposures to individual stocks. Therefore, in practice it is quite often mandated that some constraints on minimum and maximum allocations are maintained. However, this makes building the frontier itself quite computationally and conceptually challenging. Today we are investigating a simple, flexible, and efficient procedure to construct optimal portfolios and frontiers with arbitrary allocation constraints in Excel and discuss the impact allocation constraints has on their shapes and feasible investment opportunities.
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Hi. Amazing video and explanation. Bu t I could not understand the alpha, beta, gamma, and delta part. Can you recommend a source where I can learn it? Thanks in advance.
Yet another stellar job, welldone. One could also add Tracking error or level of diversification (or any other, really) as additional constraints particularly when you have a large number of assets in your portfolio, just need to check how many constraints can solver handle. With that said however, more restrictions results in non-optimal results, so always need to be reasonable on that front. Luckily Python has a few more solver types that can handle advanced/complex constraints.
Hi Tshego, and thanks so much for the feedback! Allocation constraints generally address this sort of logic (adequate diversification, etc.) quite well, what can be added if there is a large number of assets is the active share (to prevent overweighting into small-caps). I have got a simple video on that here: ruclips.net/video/u5ycLGtr0-I/видео.html Might do something more advanced along these lines in the future!
Sorry if this a stupid question, but does this work for asset classes broadly, as I note the absence of a correlation matrix.
Hi, can you please create a video on creating the frontier with short selling constraints in python. I saw the general frontier video in python, thanks a lot for that, however as you said taking short positions may not be possible and excel solver won’t help in realistic cases
Hi Dhairya, and thanks for the suggestion! Since this video is doing quite well, I will be making a Python tutorial as well.
@@NEDLeducation thanks alot, waiting for it