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Optimizing with respect to Sharpe ratio directly?
Hi all,Can anybody point me to some literature on how to optimize portfolio weights optimizing with respect to Sharpe ratio directly? I am trying some "naive" optimization solver, but I would like to know better ways...Thanks
Optimizing with respect to Sharpe ratio directly?
Take a look at mean-variance efficient frontier and tangency portfolio.http://en.wikipedia.org/wiki/Modern_portfolio_theoryThe tangency portfolio is the sharpe-ratio efficent portfolio.
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Optimizing with respect to Sharpe ratio directly?
Modern Portfolio Theory and Investment Analysis by Edwin J. Elton, etc
Optimizing with respect to Sharpe ratio directly?
Solver in Excel is a quick-and-dirty way to optimize (any number of different variables). You should be able to crank out a solution in 20 minutes.
Optimizing with respect to Sharpe ratio directly?
You can certainly do it this way but it won't be globally optimal if there are any non-linearities in the data which in general there will be see Here
Optimizing with respect to Sharpe ratio directly?
QuoteOriginally posted by: phubabaTake a look at mean-variance efficient frontier and tangency portfolio.http://en.wikipedia.org/wiki/Modern_portfolio_theoryThe tangency portfolio is the sharpe-ratio efficent portfolio.How do we get the tangency portfolio then?Any recommended readings and books on this?Thanks a lot!
Optimizing with respect to Sharpe ratio directly?
In the book:Optimization Methods in Finance, by Cornuejols and Tutuncu,I remember there is a section where the authors describe how to optimize the Sharpe ratio in a portfolio selection context. But this problem is more sensitive to the inputs than the classical optimization of the mean-variance utility. Hence, the associated solution will have positions extremely unstable.
Optimizing with respect to Sharpe ratio directly?
QuoteHow do we get the tangency portfolio then?Explicit formulas for the tangency portfolio, also known as the Optimal Combination of Risky Assets (OCRA) are discussed in this old Wilmott thread, which gives references.