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AB12358


Total Posts: 58
Joined: Apr 2014
 
Posted: 2017-11-13 00:45
I was reading through He, Litterman. The intuition behind Black-Litterman (PDF) the other day, and just saw that there's an active Kelly Sizing thread in which Markowitz mean variance is discussed.

As a non-industry type, I have no idea what's actually going on. I'm curious what the current state of best practice in terms of portfolio optimisation is, particularly with respect to beta neutral portfolios.

finanzmaster


Total Posts: 158
Joined: Feb 2011
 
Posted: 2017-12-11 22:56
The best practice is ... common sense!

Well, from theoretical point of view Kelly criterion is the most consistent approach.
I scrutinized it in this paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2259133

However, Kelly also is very sensitive to the parameter estimation errors (that are inevitable by limited sample of historical market data and ever-changing markets).
This its application is also pretty hard, also possible.
But first of all it is to consider as theoretical limit of which performance one can[not] achieve in long-term.

www.yetanotherquant.com - Knowledge rather than Hope: A Book for Retail Investors and Mathematical Finance Students
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