Optimal Index Asset Allocation for Maximizing Risk Adjusted Performance Using Historical Returns

26 Pages Posted: 10 Dec 2015

See all articles by Giuseppe Palmiotti

Giuseppe Palmiotti

Idaho National Laboratory

Valentina Palmiotti

Federal Reserve Bank of Chicago

Date Written: December 8, 2015

Abstract

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.

Suggested Citation

Palmiotti, Giuseppe and Palmiotti, Valentina, Optimal Index Asset Allocation for Maximizing Risk Adjusted Performance Using Historical Returns (December 8, 2015). Available at SSRN: https://ssrn.com/abstract=2700985

Giuseppe Palmiotti

Idaho National Laboratory ( email )

Box 1625
Idaho Falls, ID 83415
United States

Valentina Palmiotti (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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