Robust portfolio construction controlling the alpha-weight angle

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dc.contributor.advisorBradfield, Daveen_ZA
dc.contributor.authorBailey, Geraldineen_ZA
dc.date.accessioned2014-07-31T12:30:06Z
dc.date.available2014-07-31T12:30:06Z
dc.date.issued2013en_ZA
dc.descriptionIncludes abstract.
dc.descriptionIncludes bibliographical references.
dc.description.abstractEstimation risk is widely seen to have a significant impact on mean-variance portfolios and is one of the major reasons the standard Markowitz theory has been criticized in practice. While several attempts to incorporate estimation risk has been considered in the past, the approach by of Golts and Jones (2009) represents an innovative approach to incorporate estimation risk in the sample estimates of the input returns and covariance matrix. In this project we discuss the theory introduced by Golts and Jones (2009) which looks at the direction and the magnitude of the vector of optimal weight and investigates them separately, with focus on the former. We demystify the theory of the authors with focus on both mathematical reasoning and practical application. We show that the distortions of the mean-variance optimization process can be quantified by considering the angle between the vector of expected returns and the vector of optimized portfolio positions. Golts and Jones (2009) call this the alpha-weight angle. We show how to control this angle by employing robust optimization techniques, which we also explore as a main focus in this project. We apply this theory to the South African market and show that we can indeed obtain portfolios with lower risk statistics especially so in times of economic crisis.en_ZA
dc.identifier.apacitationBailey, G. (2013). <i>Robust portfolio construction controlling the alpha-weight angle</i>. (Thesis). University of Cape Town ,Faculty of Commerce ,Division of Actuarial Science. Retrieved from http://hdl.handle.net/11427/5812en_ZA
dc.identifier.chicagocitationBailey, Geraldine. <i>"Robust portfolio construction controlling the alpha-weight angle."</i> Thesis., University of Cape Town ,Faculty of Commerce ,Division of Actuarial Science, 2013. http://hdl.handle.net/11427/5812en_ZA
dc.identifier.citationBailey, G. 2013. Robust portfolio construction controlling the alpha-weight angle. University of Cape Town.en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Bailey, Geraldine AB - Estimation risk is widely seen to have a significant impact on mean-variance portfolios and is one of the major reasons the standard Markowitz theory has been criticized in practice. While several attempts to incorporate estimation risk has been considered in the past, the approach by of Golts and Jones (2009) represents an innovative approach to incorporate estimation risk in the sample estimates of the input returns and covariance matrix. In this project we discuss the theory introduced by Golts and Jones (2009) which looks at the direction and the magnitude of the vector of optimal weight and investigates them separately, with focus on the former. We demystify the theory of the authors with focus on both mathematical reasoning and practical application. We show that the distortions of the mean-variance optimization process can be quantified by considering the angle between the vector of expected returns and the vector of optimized portfolio positions. Golts and Jones (2009) call this the alpha-weight angle. We show how to control this angle by employing robust optimization techniques, which we also explore as a main focus in this project. We apply this theory to the South African market and show that we can indeed obtain portfolios with lower risk statistics especially so in times of economic crisis. DA - 2013 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 2013 T1 - Robust portfolio construction controlling the alpha-weight angle TI - Robust portfolio construction controlling the alpha-weight angle UR - http://hdl.handle.net/11427/5812 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/5812
dc.identifier.vancouvercitationBailey G. Robust portfolio construction controlling the alpha-weight angle. [Thesis]. University of Cape Town ,Faculty of Commerce ,Division of Actuarial Science, 2013 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/5812en_ZA
dc.language.isoengen_ZA
dc.publisher.departmentDivision of Actuarial Scienceen_ZA
dc.publisher.facultyFaculty of Commerceen_ZA
dc.publisher.institutionUniversity of Cape Town
dc.subject.otherMathematical Financeen_ZA
dc.titleRobust portfolio construction controlling the alpha-weight angleen_ZA
dc.typeMaster Thesis
dc.type.qualificationlevelMasters
dc.type.qualificationnameMPhilen_ZA
uct.type.filetypeText
uct.type.filetypeImage
uct.type.publicationResearchen_ZA
uct.type.resourceThesisen_ZA
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