Completely updated and extended to cover the rapid expansion of the literature since the financial crises, this new edition of Portfolio Construction and Risk Budgeting provides the reader with a clear overview of the subject. The author presents quantitative methods and comprehensive and up-to-date coverage of alternative portfolio construction techniques, ranging from traditional methods based on mean– variance and lower-partial moments approaches, through Bayesian techniques, to more recent developments such as portfolio re-sampling and stochastic programming solutions using scenario optimisation.
• Application in Mean–Variance Investing
• Incorporating Deviations from Normality
• Portfolio Resampling and Estimation Error
• Robust Portfolio Optimisation and Estimation Error
• Bayesian Analysis and Portfolio Choice
This new edition is highly recommended for practitioners including portfolio managers, consultants, strategists, marketers and quantitative analysts.
- Book - 9781782721000 / eBook - 9781782722342
- Publish date
- 27 Apr 2015
- 155mm x 235mm
Table of contents
1. A Primer on Portfolio Theory
2. Application in Mean–Variance Investing
3. Diversification - NEW CHAPTER
4. Frictional diversification costs - NEW CHAPTER
5. Risk Parity - NEW CHAPTER
6. Incorporating Deviations from Normality: Lower Partial Moments
7. Portfolio Resampling and Estimation Error
8. Robust Portfolio Optimisation and Estimation Error
9. Bayesian Analysis and Portfolio Choice
10. Testing Portfolio Construction Methodologies Out-of-Sample
11. Portfolio Construction with Transaction Costs
12. Portfolio Optimisation with Options: From the Static Replication of CPPI Strategies to a More General Framework
13. Scenario Optimisation
14. Core–Satellite Investing: Budgeting Active Manager Risk
15. Benchmark-Relative Optimisation
16. Removing Long-Only Constraints: 120/20 Investing
17. Performance-Based Fees, Incentives and Dynamic Tracking Error Choice
18. Long-Term Portfolio Choice
19. Risk Management for Asset-Management Companies
20. Valuation of Asset Management Firms
21. Tail Risk Hedging
"Dr. Scherer's "Portfolio Construction and Risk Budgeting" book is a unique blend of rigor and relevance, undoubtedly due to the particularly rich background of the author in both academia and investment management. Its most attractive feature is perhaps that it very convincingly emphasizes that risk management, defined as the art and science of spending investors' risk and dollar budgets in the most efficient way, is the key source of added-value in investment management. A careful reading of this book will be time well invested for any practitioner in investment management, or any student who wants to enter the field."
Lionel Martellini, Professor of Finance at EDHEC Business School and Scientific Director of EDHEC Risk Institute
"Dr. Scherer’s book is insightful, comprehensive and accessible. Just as intelligent diversification of return sources characterizes portfolio construction, creative use of diverse learning tools – verbal intuition, formal equations and graphical aids – characterizes this new edition as it covers a wide range of topics.
Mean-variance optimization is justly at the core, but what are its underlying assumptions and practical pitfalls? How can we best deal with the challenges of estimation errors and model uncertainty? Which assumptions simplify the mean-variance approach to popular strategies such as ‘1/n’, risk parity, minimum variance, or maximum diversification? What is the impact of trading costs, benchmarks, and constraints? Can these concepts be applied beyond standard asset problems and extended to active manager allocation, valuation and risk management of asset management firms, or tail risk hedging? It is all here."
Antti Ilmanen, Principal, AQR Capital Management
"This book provides a unique practically relevant and intellectually rigorous approach to portfolio construction and risk budgeting. I have used earlier editions and plan to continue to use the latest edition to teach courses in portfolio management. Scherer's book lays an excellent foundation since it provides a comprehensive and intuitive introduction to the most important topics in portfolio construction. What makes it particularly valuable for practitioners is the incorporation of real-world investment constraints and institutional considerations as well as the notation which facilitates the empirical application of the material."
Professor Robert Kosowski, Imperial College Business School, CEPR and Oxford-Man Institute.
"The fifth edition of Bernd’s text is an encyclopedic treatment of the rigorous management of investment portfolios. Not only does it provide a robust treatment of all major aspects of portfolio construction, this book uniquely examines many of the rarely discussed, often unrecorded, assumptions embedded in various theoretical constructs. The book provides useful and transparent recipes for addressing the endless number of “fine print” issues that face practitioners. In doing so, this work can make the difference between truly successful investment practice, and reliance on methods that are similar in outline but lack the necessary depth of detail."
Dan Di Bartolomeo, Ph.D., President, Northfield Information Services