Optimal Asset Allocation Strategies

25 Pages Posted: 28 Jun 2016 Last revised: 15 Jul 2016

Date Written: June 26, 2016


This study presents a survey on the current methodologies employed in the asset allocation industry. We review techniques from Modern Portfolio Theory and focus on the central role of the mean-variance optimization problem. The formalism of the Black-Litterman model is discussed with its Bayesian rigorous approach to combine the equilibrium returns predicted by the Capital Asset Pricing Model and investors' views. We also turned our attention to factor models to estimate asset returns and corresponding financial risks as an alternative to the traditional approaches. Linear, non-linear and machine learning regression techniques are made available for the construction of the factor models.

Keywords: portfolio management, risk management, asset allocation, factor investing, optimization, Black Litterman model, Modern Portfolio Theory, regression models, Gaussian Process, Artificial Neural Network

JEL Classification: C11, C51, C52, C61, C63, G11

Suggested Citation

Stefanescu, Razvan, Optimal Asset Allocation Strategies (June 26, 2016). Available at SSRN: https://ssrn.com/abstract=2800815 or http://dx.doi.org/10.2139/ssrn.2800815

Razvan Stefanescu (Contact Author)

North Carolina State University ( email )

Hillsborough Street
Raleigh, NC 27695
United States

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