Optimal Index Asset Allocation for Maximizing Risk Adjusted Performance Using Historical Returns
26 Pages Posted: 10 Dec 2015
Date Written: December 8, 2015
This paper seeks to determine an optimal allocation of index assets selected among classes commonly used for diversifying portfolios intended for long term investments, like those employed for retirement purposes (401(k) or IRA). The goal of this study, intended for risk adverse investors, is to obtain a risk adjusted performance which rewards returns and penalizes volatility. Nonlinear optimization techniques are employed to calculate the optimal allocation that maximizes risk adjusted performance. Results are compared against those of other traditional portfolios, and a parametric study is performed to investigate the impact of different rebalancing frequencies on portfolio performance.
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