Robust Equity Portfolio Management, + Website

Robust Equity Portfolio Management + Website offers the most comprehensive coverage available in this burgeoning field. Beginning with the fundamentals before moving into advanced techniques, this book provides useful coverage for both beginners and advanced readers. MATLAB code is provided to allow readers of all levels to begin implementing robust models immediately, with detailed explanations and applications in the equity market included to help you grasp the real-world use of each technique. The discussion includes the most up-to-date thinking and cutting-edge methods, including a much-needed alternative to the traditional Markowitz mean-variance model. Unparalleled in depth and breadth, this book is an invaluable reference for all risk managers, portfolio managers, and analysts.

Portfolio construction models originating from the standard Markowitz mean-variance model have a high input sensitivity that threatens optimization, spawning a flurry of research into new analytic techniques. This book covers the latest developments along with the basics, to give you a truly comprehensive understanding backed by a robust, practical skill set.

• Get up to speed on the latest developments in portfolio optimization
• Implement robust models using provided MATLAB code
• Learn advanced optimization methods with equity portfolio applications
• Understand the formulations, performances, and properties of robust portfolios

The Markowitz mean-variance model remains the standard framework for portfolio optimization, but the interest in—and need for—an alternative is rapidly increasing. Resolving the sensitivity issue and dramatically reducing portfolio risk is a major focus of today's portfolio manager. Robust Equity Portfolio Management + Website provides a viable alternative framework, and the hard skills to implement any optimization method.

Preface xi

Chapter 1

Introduction 1

Chapter 2

Mean-Variance Portfolio Selection 6

Chapter 3

Shortcomings of Mean-Variance Analysis 22

Chapter 4

Robust Approaches for Portfolio Selection 39

Chapter 5

Robust Optimization 66

Chapter 6

Robust Portfolio Construction 95

Chapter 7

Controlling Third and Fourth Moments of Portfolio Returns via Robust Mean-Variance Approach 122

Chapter 8

Higher Factor Exposures of Robust Equity Portfolios 137

Chapter 9

Composition of Robust Portfolios 164

Chapter 10

Robust Portfolio Performance 185

Chapter 11

Robust Optimization Software 216

About the Authors 231

About the Companion Website 233

Index 235

WOO CHANG KIM is associate professor in the Industrial and Systems Engineering Department at the Korea Advanced Institute of Science and Technology (KAIST). He serves on the editorial boards for several journals, including Journal of Portfolio Management, Optimization and Engineering, and Quantitative Finance Letters.

JANG HO KIM is assistant professor of Industrial and Management Systems Engineering at Kyung Hee University.

FRANK J. FABOZZI is editor of the Journal of Portfolio Management, professor of finance at EDHEC Business School, and a senior scientific adviser at the EDHEC-Risk Institute.

Since Harry Markowitz published his mean-variance model in 1952, numerous extensions have followed attempting to overcome its limitations. Robust Equity Portfolio Management provides singular coverage on one of these extensions—the construction of robust portfolios for equity portfolio management within the mean-variance framework.

Whether you have no background in portfolio management and optimization or want to add quantitative robust equity portfolio management to your skill set, this versatile guide offers step-by-step instruction on the theory and mechanics you need to use robust models for optimal portfolio construction. After an insightful primer on portfolio theory and optimization supported by programming examples, coverage advances to robust formulations, implementation of robust portfolio optimization, attributes of robust portfolios, and robust portfolio performance. Financial professionals and newcomers alike will benefit from:

• Peerless depth and focus of material on the quantitative side of equity portfolio management, with emphasis on portfolio optimization and risk analysis
• Engaging reviews of theoretical developments alongside numerous programming examples to demonstrate their use in practice
• A wealth of historical data, expert insight, and technical expertise used to examine the formulations, implementations, and properties of robust equity portfolios
• A companion website offering hands-on practice implementing portfolio problems in MATLAB, as well as a complete list of MATLAB codes used in the book
• A practical look at software packages for solving robust optimization problems with both easily defined uncertainty sets and functions for automatically reformulating problems into a tractable form

Set yourself apart with the specialized training to explore advanced methods for improving portfolio robustness with Robust Equity Portfolio Management.