Dynamic Portfolio Management with Views at Multiple Horizons

Applied Mathematics and Computation, Volume 274, 1 February 2016, Pages 495-518

33 Pages Posted: 24 Mar 2015 Last revised: 10 Dec 2017

See all articles by Attilio Meucci

Attilio Meucci

ARPM - Advanced Risk and Portfolio Management

Marco Nicolosi

University of Perugia - Department of Economics

Date Written: April 16, 2015

Abstract

We introduce Dynamic Entropy Pooling, a quantitative technique to perform dynamic portfolio construction with discretionary, non-synchronous views. With Dynamic Entropy Pooling, the portfolio manager can embed in the allocation process signals with life spans ranging from minutes to years, calendar views, autocorrelation stress-testing, and the traditional views on expectations, correlations and volatilities.

After introducing the theoretical framework for Dynamic Entropy Pooling, we show how to solve the respective portfolio construction problem by means of dynamic programming with time-dependent coefficients. To understand the optimal exposures ensuing from Dynamic Entropy Pooling we analyze a variety of relevant sub-cases and we present two case-studies.

Keywords: dynamic strategies, discretionary allocation, mean-reversion, multivariate Ornstein-Uhleneck, Kullback Leibler divergence, relative entropy, optimal policy, dynamic programming, calculus of variations

JEL Classification: C1, G11

Suggested Citation

Meucci, Attilio and Nicolosi, Marco, Dynamic Portfolio Management with Views at Multiple Horizons (April 16, 2015). Applied Mathematics and Computation, Volume 274, 1 February 2016, Pages 495-518. Available at SSRN: https://ssrn.com/abstract=2583612 or http://dx.doi.org/10.2139/ssrn.2583612

Attilio Meucci (Contact Author)

ARPM - Advanced Risk and Portfolio Management ( email )

HOME PAGE: http://www.arpm.co/

Marco Nicolosi

University of Perugia - Department of Economics ( email )

via Pascoli, 20
PG 06123 Perugia, 06123
Italy

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