STICK IT OUT OR EVEN IT OUT? Towards a robust multi-period - - PowerPoint PPT Presentation
STICK IT OUT OR EVEN IT OUT? Towards a robust multi-period efficient frontier HISTORY OF PORTFOLIO SELECTION 1952, Markowitz: Efficient frontier for one-off investments 1956, Kelly: Optimize expected terminal wealth for repeated games 1991,
Towards a robust multi-period efficient frontier
1952, Markowitz: Efficient frontier for one-off investments 1956, Kelly: Optimize expected terminal wealth for repeated games 1991, Cover: Kelly without statistical assumptions
Portfolio should be risk/return Pareto efficient Does not use intermediate info
Risk Return
Investing is a repeated game Kelly: if distribution known, calculate terminal wealth
Cover: no assumptions, compare with a good benchmark
No statistical assumptions Define a 'best strategy in hindsight' a la Markowitz Minimize maximum distance to best strategy Repeat for different risk preferences to build efficient frontier
Why no statistical assumptions? Assets get (de)listed Trump starts a tariff war
Why that arbitrary benchmark?
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 1 2 3 4 5 6 7 8 9 10 11 12 13 14SP500 Cover 1/N BCRP: >60
Find efficient frontier Include transaction costs Optimal rebalancing frequency Theorems, proofs
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