Portfolio rebalancing by means of resampled efficient frontiers with forecast confidence level
First Claim
1. A computer-implemented method for selecting a value of a portfolio weight for each of a plurality of assets of an optimal portfolio, the value of portfolio weight chosen from specified values associated with each asset, between real numbers c1 and c2 that may vary by asset, each asset having a defined expected return and a defined standard deviation of return, each asset having a covariance with respect to each of every other asset of the plurality of assets, the method comprising:
- a. computing a mean-variance efficient frontier based at least on input data characterizing the defined expected return and the defined standard deviation of return of each of the plurality of assets;
b. indexing a set of portfolios located on the mean-variance efficient frontier thereby creating an indexed set of portfolios;
c. choosing a forecast certainty level for defining a resampling process of the input data consistent with an assumed forecast certainty of the input data;
d. defining a resampling process of the input data consistent with the chosen forecast certainty of the input data;
e. resampling, in accordance with the process defined by the forecast certainty level, a plurality of simulations of input data statistically consistent with the defined expected return and the defined standard deviation of return of each of the plurality of assets;
f. computing a simulated mean-variance efficient portfolio for each of the plurality of simulations of input data;
g. associating each simulated mean-variance efficient portfolio with a specified portfolio of the indexed set of portfolios for creating a set of identical-index-associated mean-variance efficient portfolios;
h. establishing a statistical mean for each set of identical-index-associated mean-variance efficient portfolios, thereby generating a plurality of statistical means, the plurality of statistical means defining a resampled efficient frontier,wherein processes (a), (b), and (d)-(g) are digital computer processes;
i. selecting a portfolio weight for each asset from the resampled efficient frontier according to a specified utility objective; and
j. investing funds in accordance with the selected portfolio weights.
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Abstract
A computer-implemented method and computer program product for selecting a portfolio weight (subject to specified constraints) for each of a plurality of assets of an optimal portfolio. A mean-variance efficient frontier is calculated based on input data characterizing the defined expected return and the defined standard deviation of return of each of the plurality of assets. Multiple sets of optimization inputs are drawn from a distribution of simulated optimization inputs consistent with the defined expected return, the defined standard deviation of return of each of the plurality of assets and then a simulated mean-variance efficient frontier is computed for each set of optimization inputs. A meta-resampled efficient frontier is determined as a statistical mean of associated portfolios among the simulated mean-variance efficient frontiers, and a portfolio weight is selected for each asset from the meta-resampled efficient frontier according to a specified investment objective. The number of simulations and the number of simulation periods is determined on the basis of a specified level of forecast certainty.
48 Citations
7 Claims
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1. A computer-implemented method for selecting a value of a portfolio weight for each of a plurality of assets of an optimal portfolio, the value of portfolio weight chosen from specified values associated with each asset, between real numbers c1 and c2 that may vary by asset, each asset having a defined expected return and a defined standard deviation of return, each asset having a covariance with respect to each of every other asset of the plurality of assets, the method comprising:
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a. computing a mean-variance efficient frontier based at least on input data characterizing the defined expected return and the defined standard deviation of return of each of the plurality of assets; b. indexing a set of portfolios located on the mean-variance efficient frontier thereby creating an indexed set of portfolios; c. choosing a forecast certainty level for defining a resampling process of the input data consistent with an assumed forecast certainty of the input data; d. defining a resampling process of the input data consistent with the chosen forecast certainty of the input data; e. resampling, in accordance with the process defined by the forecast certainty level, a plurality of simulations of input data statistically consistent with the defined expected return and the defined standard deviation of return of each of the plurality of assets; f. computing a simulated mean-variance efficient portfolio for each of the plurality of simulations of input data; g. associating each simulated mean-variance efficient portfolio with a specified portfolio of the indexed set of portfolios for creating a set of identical-index-associated mean-variance efficient portfolios; h. establishing a statistical mean for each set of identical-index-associated mean-variance efficient portfolios, thereby generating a plurality of statistical means, the plurality of statistical means defining a resampled efficient frontier, wherein processes (a), (b), and (d)-(g) are digital computer processes; i. selecting a portfolio weight for each asset from the resampled efficient frontier according to a specified utility objective; and j. investing funds in accordance with the selected portfolio weights. - View Dependent Claims (2, 3, 4, 5, 6, 7)
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Specification
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- Resources
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Current AssigneeMichaud Partners LLP
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Original AssigneeMichaud Partners LLP
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InventorsMichaud, Robert, Michaud, Richard O.
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Primary Examiner(s)Subramanian; Narayanswamy
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Application NumberUS11/158,267Publication NumberTime in Patent Office1,148 DaysField of Search705 35- 37, 705/36.RUS Class Current705/36.00RCPC Class CodesG06Q 10/063 Operations research, analys...G06Q 40/00 Finance; Insurance; Tax str...G06Q 40/04 Trading; Exchange, e.g. sto...G06Q 40/06 Asset management; Financial...
