Portfolio Optimization I Discuss aspects of PO, including the Efficient Frontier, Capital Allocation Line, Modern Portfolio Theory and Portfolio Correlation. IIDiscuss how LTCM’s Portfolio Optimization went wrong, including the portfolio’s correlation factor. IIIDiscuss Portfolio Optimization and some problems associated with it. IVContrast a simpler alternative to more elaborate strategies while producing more consistent performance

I a

I b

I c

The Efficient Frontier for S&P 100 I d

I e

Efficient Frontier. I f en.wikipedia.org/wiki/File:Markowitz_frontier.jpg

Portfolio Optimization with two assets Corporate Bond Treasury Risk-free Optimal Portfolio II a Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk, Philippe Jorion, pps

Portfolio Optimization Capital Allocation Line The Efficient Frontier II b Corporate Bond Treasury Bond Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk, Philippe Jorion, pps

II c

II d

II e

Risk and the Number of Securities Risk (% pa) Number of Securities II f Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk, Philippe Jorion, pps

II g Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk, Philippe Jorion, pps

default-rate volatility Moody’s Investor Services, Alexandra Berthault II h

III a

IV a

IV b

IV c Passive Investing Produces Better Returns Over Time

IV d The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective. - Warren Buffett

To summarize: Optimum portfolio is where Efficient frontier meets the CAL

Lessons learned from LTCM Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk, Philippe Jorion, pps

MPT Not Realistic

Passive Investing Produces Better Returns Over Time

Thank you