Index

• Absolute illiquidity
  • partial illiquidity, contrast
• Absolute performance potential outcomes
• Absorption ratio
• After-cost improvement
• Aggressive efficient portfolios
• Alpha
• Annual skewness
• Appraisal-based valuations
• Arithmetic average returns
• Asset allocation
  • case study
  • conditions
  • considerations
  • correlations
  • dimensionality, problem
  • fallacy/impact
  • foundation
  • full-scale optimization
  • fundamentals
  • implementation
  • importance
  • policy return, defining
  • relative importance, analytic determination
  • tactical asset allocation
• Asset class
  • beta, calculation
  • characteristics
  • components
  • conditional asset class performance
  • correlations
  • cost-effective access
  • covariances, estimation
  • defining
  • errors, empirical analysis
  • expected returns
  • expected utility
  • factor diversification, equivalence
  • frontiers
  • geometric returns, average
  • grouping
  • multivariate mixture
  • optimization
  • potential classes
  • quarterly returns, constructions
  • risk
  • risk properties
  • selection skill
  • semi-standard deviations
  • standard deviation
  • transaction costs
  • unstable correlation, multivariate mixture
  • weights
• Assets
  • combination
  • expected returns
  • mean-variance analysis
  • nonlinear asset dependencies
  • risk, exposure
  • risky assets, conditional annualized returns
  • standard deviations
  • valuation
  • Asset-specific tail distributions
  • Asymmetric preferences
  • At-the-money option, price
  • Autoregressive model

• Backfill function
• Backtest performance
• Bands, statistical significance
• Basket option
• Baum-Welch algorithm
• Bayesian shrinkage
• Bayes theorem
• Bayes, Thomas
• Beebower, Gilbert
• Bernoulli, Daniel
• Beta
  • regression beta
• Black Monday stock market crash (1987)
• Blended covariance
  • solution
• Bonds, optimal allocation
• Bootstrapping simulation
• Bootstrap simulation
• Borrowing costs
• Brexit vote
• Brinson, Gary

• Calendar-based rebalancing
  • policies
• Calendar-based rules, incurring
• Call option
• Capital Asset Pricing Model (CAPM)
• Capital call
• Capitalization-weighted market portfolio
• Capital market line
• Cash demands
• Central Limit Theorem
• Certainty equivalents
• Chi-squared distribution
• Comovement, aspects
• Composite instability
• Compounding, effects
• Concave utility function
• Concentrated portfolios, realized return/standard deviation (recording)
• Concentration
• Concentration, leverage (contrast)
  • borrowing costs, usage
  • estimation error, usage
  • kinked utility/nonellipticality, usage
  • nonelliptical returns/kinked utility, usage
  • summary results
• Conditional asset class performance
• Conservative efficient portfolios
• Consolidation, impact
• Constant absolute risk aversion
• Constant relative risk aversion
• Constraints
• Consumption habits, impact
• Contingent option
• Continuous probability distribution
• Continuous returns
• Corner solutions
• Correlations
  • country ranking
  • cross-correlation
  • estimation
  • examples
  • ranking
• Country allocation
• Country expected returns
  • misestimation
  • ranking
• Country weights
  • optimum, distortion
  • problems, loss exposure
• Covariance
  • blended covariance
  • equation
  • invertibility
  • matrix
  • structure
• Cross-correlation
• Cross-hedging
  • solutions, Australian dollar (usage)
• Cumulative cash demands
• Cumulative probability distribution
• Cumulative returns
• Currencies
  • correlations
  • currency forward contract
  • currency-specific hedging
  • expected returns
  • exposure
    • portfolio value percentage
  • impact
  • portfolio currency returns (distribution), hedging strategies (impact)
  • standard deviations
  • volatility
• Currency risk
  • hedging, reason
• Currency-specific hedge positions

• Data-driven estimates
• Data mining
• Density
• De-smoothing adjustment
• Dimensionality
• Discrete distributions
• Discrete probability distribution
• Discrete returns
• Distributions
  • central moments
  • elliptical distributions
  • fat-tailed distribution
  • leptokurtic distribution
  • lognormal distribution
  • mixture
  • multivariate distribution
  • normal distribution
  • platykurtic distribution
  • probability distributions
  • stability-adjusted return distribution, construction
  • symmetric distribution
• Diversification. See Time
  • argument
  • factors, impact
• Domestic equities, behavior
• Dynamic programming

• e (natural logarithm base)
• Economic indicators
• Economics
  • behavioral bias. See Positive economics.
  • intuition
• Economic variable, out-of-sample behavior (uncertainty)
• Efficient frontier
  • borrowing/lending, inclusion
  • derivation
  • mean-tracking error efficient frontier
  • mean-variance efficient frontier
• Efficient portfolios
• Efficient surface. See also Mean-variance efficient surface
• Eigenvalue
• Eigenvector
• Elliptical assets
• Elliptical distributions
• Emerging market equities, returns
• Empirical analysis
• End-of-horizon exposure
• End-of-horizon loss probability
• End-of-horizon value at risk
• Equally weighted portfolios, comparison
• Equilibrium return
• Error maximization
  • analytical argument
  • argument, intuition
  • empirical argument
• Error optimization, mean-variance-tracking error optimization
• Errors, ignoring
• Estimation error
  • approaches
  • Bayesian shrinkage
  • components
  • empirical analysis
  • resampling
  • robust optimization
  • types
  • usage
• Euclidean distance
• Eventual acceptance property
• E-V maxim
• Excess return
• Exchange-traded fund (ETF)
• Expected log-wealth utility, usage
• Expected return
  • assumptions
  • changes
  • estimation
  • examples
  • measurement, efficient frontier (usage)
  • ranking
  • shadow allocations, risk
  • shadow asset/liability
  • spread
• Expected utility
  • maximization
  • time, relationship
• Expected wealth, example
• Exponential function
• Externally heterogeneous (measure)
• Externally homogeneous asset

• Factors
  • defining
  • diversification, asset class (equivalence)
  • exposure
  • factor-mimicking portfolio
  • fundamental factor
  • statistical factor
  • term, usage
• Fair-value pricing
  • downward bias, adjustment
• Fat-tailed distribution
• 50/50 portfolio
• Financial turbulence
• First passage time probability
• Fixed-income portfolio, example
• Foreign asset contingent option
• Foreign equity returns
• 45/55 percent stock/bond portfolio, expected utility
• Forwards, usage
• Full-sample exposure, regime-dependent exposure (contrast)
• Full-sample optimal portfolios
• Full-sample values
• Full-scale allocations/characteristics
• Full-scale optimal hedging results, forwards/options (usage)
• Full-scale optimization
• Fully hedged portfolio, standard deviation (low level)
• Fundamental factor
• Future wealth, dependence

• Gaussian distribution
• Genetic search
• Geometric average returns
• Global financial crisis (2008)

• Hardy, G.H.
• Hedged portfolio, variance
• Hedge funds, focus
• Hedge ratios
• Hedging
  • cross-hedging
  • currency-specific hedge positions
  • extension, reason
  • full-scale optimal hedging results, forwards/options (usage)
  • linear hedging strategies
  • minimum-regret hedge ratio
  • minimum-variance hedge ratio
  • nonlinear hedging strategies
  • overhedging
  • performance, individual quarterly put options (inclusion)
  • reason
  • risk-minimizing hedging policy, identification
  • risk-minimizing hedging ratios
  • strategies, impact
• Hidden Markov Model
  • effectiveness
  • fit
  • regime probabilities
  • regime probability forecasts
• Higher moment
• High-frequency statistics, mapping
• Hood, Randolph
• Horizons, impact

• Identity matrix
• Illiquid assets, optimal exposure
• Illiquidity
  • case study
  • cash demands
  • considerations
  • contrast
  • optimal allocations, real estate (inclusions/exclusions)
  • partial illiquidity
  • rebalancing
  • shadow assets/liabilities
• Imaginary world
• Independent and identically distributed (IID)
  • continuous returns
• Independent-sample error (ISE)
• Individual quarterly put options, usage
• Industry, instability
• Information, reliability
• Initial investment, multiple
• Input errors, hypersensitivity
• Integral, term (usage)
• Intermediate-term bonds, redundancy
• Internally homogeneous (measure)
• Internally homogeneous asset
• Interval error
• Inverse covariance matrix, scalar multiple
• Inverse gamma distribution
• Inverse matrix
• Invertible matrix
• Investable asset
• Investment
  • constraints
  • horizon
  • returns, independence
• Investors
  • performance, differences
  • risk aversion
• Iso-expected return curve

• Jarque-Bera test

• Kinked utility
  • function
  • usage
• Kurtosis
  • calculation

• Lagrange multiplier
• Lambda
• Law of large numbers
• Leptokurtic distribution
• Leverage
  • practice
  • theoretical use
• Leverage/concentration, contrast
  • borrowing costs, usage
  • estimation error, usage
  • kinked utility/nonellipticality, usage
  • nonelliptical returns/kinked utility, usage
  • summary results
• Levered portfolios
  • construction
  • realized return/standard deviation, recording
• Linear hedging strategies
• Liquid assets, subset
• Liquidations, impact
• Liquidity
  • defensive use
  • impact
  • optimal allocation
  • usage
• Logarithm
  • natural logarithm
• Logarithmic returns
• Lognormal distribution
• Log-wealth utility function
• Longer-interval returns, standard deviation
• Long-interval correlations, dependence
• Long investment horizon
• Long-only portfolios
• Lookback window
• Loss
  • end-of-horizon exposure
  • end-of-horizon loss probability
  • exposure
  • full-sample exposure, regime-dependent exposure (contrast)
  • probability
  • within-horizon exposure
  • within-horizon loss probability
• Low-frequency statistics, high-frequency statistics (mapping)

• Macroefficiency
• Mahalanobis distance
• Mapping error (ME)
• Marginal utility
  • measurement
• Market portfolio
• Markowitz, Harry
  • E-V maxim
  • portfolio theory, application
• Markowitz-Van Dijk (MvD) heuristic
• Matrix algebra
  • rules
• Matrix inversion
• Matrix transpose
• Maximum Likelihood Estimation (MLE)
• Mean return
• Mean reversion
• Mean-tracking error (MTE) efficient frontier
• Mean-variance (MV) allocations/characteristics
  • aversion
• Mean-variance (MV) analysis
  • conditions
  • constraints
  • equivalence
  • investor requirement
  • results
  • robustness
  • tractability
  • usage
• Mean-variance (MV) approach
• Mean-variance (MV) efficient frontier
• Mean-variance-tracking error
  • optimization
• Metrics, usage
• Microefficiency
• Minimax optimization
• Minimum-regret hedge ratio
• Minimum-variance hedge ratio
• Moderate efficient portfolios
• Modified covariance, equation
• Moments
• Momentum portfolios, instability
• Monte Carlo simulation
  • application
  • usage
• MSCI U.K. Index
• Multiperiod optimization
• Multivariate distribution
• Multivariate normal distribution
• MvD rebalancing

• Natural logarithm
• NCREIF Property Index, usage
• Noise
  • reduction
• Nonellipticality, usage
• Nonelliptical returns, usage
• Nonlinear asset dependencies
• Nonlinear hedging strategies
• Nonparametric procedure
• Nonzero autocorrelations/lagged cross-correlations
• Normal distribution
• Normalization factor, equation
• Normative, term (usage)

• 1/N approach
  • case
  • problems
• 1/N heuristic
• Opportunity set (defining), assets (usage)
• Optimal allocations
  • determination
  • real estate inclusions/exclusions
• Optimal asset class weights, distortion
• Optimal country weights, distortion
• Optimal portfolio
  • variance
• Optimization
  • arguments
  • defense, empirical evidence
  • failure, occurrence
  • full-scale optimization
  • process
    • constraints
  • robust optimization
  • stability-adjusted optimization
  • stability adjustment improvement
• Optimized portfolios, comparison
• Options, usage
• Out-of-sample tests
• Out-of-the-money put option, payout
• Overhedging
• Overlay

• Partial illiquidity
  • absolute illiquidity, contrast
• Performance
  • absolute performance potential outcomes
  • hedging performance, individual quarterly put options (inclusion)
  • relative performance potential outcomes
• Performance fees
  • adjustment
  • dampening effect
  • optimal allocations
• Period-specific average returns
• Platykurtic distribution
• Playing defense/offense
• Policy portfolio
• Portfolio optimization
  • input error hypersensitivity
  • variance
• Portfolio performance
  • determinants
  • hypothesis
  • methodology, flaw
• Portfolios
  • comparison
  • concentrated portfolio, construction
  • constraints
  • construction, conditional risk estimates (inclusion)
  • currency returns (distribution), hedging strategies (impact)
  • diversification
    • currency introduction
  • expected utility, improvement
  • factor-mimicking portfolio
  • 45/55 percent stock/bond portfolio, expected utility
  • full-sample optimal portfolios
  • market portfolio
  • misallocation
  • optimal portfolio
  • policy portfolio
  • rebalancing
  • rebalancing approaches, performance evaluation
  • regime-conditioned optimal portfolios
  • risk
  • standard deviation, sensitivity
  • tangency portfolio
  • theory
  • value, currency exposure percentage
  • variance
  • weighted average
• Positive economics, behavioral bias
• Positive-semi-definite
• Positive, term (usage)
• Posterior probability
• Power utility function
• Predictive signal, identification
• Preference free
• Price-to-book value ratio
• Principal Component Analysis (PCA)
• Principal components
• Prior-period values
• Private equity funds, active management
• Probability density function (PDF)
• Probability distributions
  • continuous probability distribution
  • cumulative probability distribution
  • discrete probability distribution
• Put option

• Quadratic function
• Quadratic utility, departures

• Random variable
• Random walk
• Real estate investment trusts (REITs)
• Real estate, optimal allocation (allocations inclusion/exclusion)
• Realized return, recording
• Rebalancing
  • absence
  • strategies, performance
• Regime
  • detection
  • hidden Markov Model regime probabilities
  • hidden Markov Model regime probability forecasts
  • nonturbulent regimes, risk characteristics
  • persistence
  • regime-conditioned optimal portfolios
  • regime-dependent exposure, full-sample exposure (contrast)
  • regime-sensitive allocation
  • risk regimes
  • shifts
  • turbulent/nonturbulent regimes, risk characteristics
  • turbulent regiments, risk characteristics
• Regression analysis
• Regression beta
• Relative importance, determination
• Relative performance potential outcomes
• Relative volatility
• Resampling
• Return intervals, increase
  • kurtosis, excess, impact
  • skewness, usage
• Returns
  • arithmetic average returns
  • continuous returns
  • cumulative returns
  • curve, iso-expected return curve
  • data, partition
  • discrete returns
  • distribution
  • equilibrium return
  • estimates
  • excess return
  • expected return
  • geometric average returns
  • predictability
  • scatter plot
  • stability-adjusted return distribution
  • U.S./foreign equity returns
• Risk
  • constant absolute/relative risk aversion
  • currency risk
  • diversification, time (usage)
  • instability
  • predictability
  • prediction
  • regimes
  • risk-equivalent bias
  • risk-free investment
  • risk-free return
  • risk-minimizing currency positions
  • risk-minimizing hedging policy, identification
  • risk-minimizing hedging ratios
  • within-horizon risk
• Risk aversion
  • coefficient
• Riskless arbitrage
• Risky assets, conditional annualized returns
• Robust optimization
• Root-mean-squared error
• Russian debt default (1998)

• Sample error
  • independent-sample error
  • small-sample error
• Sample statistic
• Samuelson, Paul A.
  • bet
  • dictum
  • rationale
• Securities
  • asset class grouping
  • returns, comovement (quantification)
• Security
  • attribute
  • selection
• Semi-standard deviations
• Separation theorem
• 70/30 portfolio
• 70/30 stock/bond portfolio
• 75/35 portfolio
• 75 percent stock portfolio, expected utility
• Shadow allocations
• Shadow assets
  • allocation constraint
  • expected return/standard deviation
• Shadow liabilities
  • allocation constraint
  • expected return/standard deviation
• Sharpe algorithm
• Sharpe ratio
• Sharpe, William
• Simulation
  • techniques
  • usage
• 60/40 portfolio
  • return distribution/expected log-wealth utility, usage
  • shift
• 65/35 portfolio
• Skewness
  • annual skewness
  • usage
• Small-sample error
  • equation
• Smoothed probabilities
• Smoothing
  • de-smoothing adjustment
  • valuation smoothing
• Sortino ratio
• S-shaped utility curve
• S-shaped utility function
• Stability-adjusted optimization
• Stability-adjusted portfolios
• Stability-adjusted return distribution
• Stability-adjusted return sample
• Stability optimization, mean-variance approach
• Stable aggregation
• Standard deviations
  • assumptions
  • country ranking
  • estimation
  • examples
  • function
  • low level
  • portfolio standard deviation, sensitivity
  • ranking
  • scales
  • shadow asset/liability
• Standard normal variable
• Statistical factor
• Stocks
  • allocation, expected utility
  • optimal allocation
  • portfolio (75 percent), expected utility
• Suboptimality costs
• Subsample
  • pairs
  • testing
• Swiss franc, safe-haven currency
• Symmetric distribution
• Systematic risk

• Tactical asset allocation
  • investor engagement
  • out of sample test
• Tangency portfolio
• Taylor series
  • approximations, usage
• Time
  • diversification
    • preference-free contradiction
  • expected utility, relationship
  • horizon, adjustment
  • square root, calculation
• Tolerance band rebalancing
• Total covariance error
• Total portfolio contingent option
• Tracking error
  • aversion
• Trading costs
• Transaction costs (TC)
• Transitioning
• Turbulence
  • equation
  • turbulence-conditioned covariance matrix

• Universal hedge ratio
• Upside deviations, downside deviations (distinction)
• Upside returns, investor preference
• U.S. equities
  • monthly correlation
  • returns
• U.S. market equities
  • five-year returns
  • monthly returns
• U.S. Treasury bonds, monthly correlation
• Utility function (U)
  • alternatives
  • concave utility function
  • kinked utility function
  • log-wealth utility function
  • power utility function
  • S-shaped utility function
• Utility theory

• Valuation smoothing
  • optimal allocations
• Value at Risk (VaR)
  • end-of-horizon value at risk
  • measurement
  • within-horizon value at risk
• Variance
  • square root, usage
• Volatility

• Wealth
  • dependence
  • distribution
  • utility
• Weights
  • sensitivity
  • vectors
• Within-horizon losses
  • probability
• Within-horizon probability
• Within-horizon risk
• Within-horizon value at risk
• Work effort, impact
• Wrong and alone, term (usage)