In answer to the intense development of new financial products and the increasing complexity of portfolio management theory, Portfolio Optimization and Performance Analysis offers a solid grounding in modern portfolio theory. The book presents both standard and novel results on the axiomatics of the individual choice in an uncertain framework, contains a precise overview of standard portfolio optimization, provides a review of the main results for static and dynamic cases, and shows how theoretical results can be applied to practical and operational portfolio optimization.
Divided into four sections that mirror the book's aims, this resource first describes the fundamental results of decision theory, including utility maximization and risk measure minimization. Covering both active and passive portfolio management, the second part discusses standard portfolio optimization and performance measures. The book subsequently introduces dynamic portfolio optimization based on stochastic control and martingale theory. It also outlines portfolio optimization with market frictions, such as incompleteness, transaction costs, labor income, and random time horizon. The final section applies theoretical results to practical portfolio optimization, including structured portfolio management. It details portfolio insurance methods as well as performance measures for alternative investments, such as hedge funds.
Taking into account the different features of portfolio management theory, this book promotes a thorough understanding for students and professionals in the field.
Table of Contents
UTILITY AND RISK ANALYSIS
Preferences under uncertainty
Alternative expected utility theory
Coherent and convex risk measures
Standard risk measures
STANDARD PORTFOLIO OPTIMIZATION
Indexed Funds and Benchmarking
Benchmark portfolio optimization
Standard performance measures
DYNAMIC PORTFOLIO OPTIMIZATION
Dynamic Programming Optimization
Lifetime portfolio selection
Optimal Payoff Profiles and Long-Term Management
Optimal payoffs as functions of a benchmark
Application to long-term management
Optimization within Specific Markets
Optimization in incomplete markets
Optimization with constraints
Optimization with transaction costs
STRUCTURED PORTFOLIO MANAGEMENT
The option-based portfolio insurance
The constant proportion portfolio insurance
Comparison between OBPI and CPPI
Optimal Dynamic Portfolio with Risk Limits
Optimal insured portfolio: discrete-time case
Optimal insured portfolio: the dynamically complete case
Value-at-risk and expected shortfall-based management
The hedge funds industry
Hedge funds performance
Optimal allocation in hedge funds
"The book will be interesting both to academic and professional readers, for it well introduces modern portfolio problems, which can be studied theoretically and/or practically."
"…the text is easy to follow. The illustrations provided nicely blend with the theory and discussions. … the book should be very attractive to graduate students with an interest in portfolio theory and researchers in the specified field. …"
—MAA Reviews, July 2008