Asset allocation under a conditional diversification measure

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Dissertation writing help - Asset Allocation under a Conditional Diversification Measure

Custom Dissertation Writing Service - Problem of diversifying investments in common market securities

In this dissertation we suppose the problem of diversifying investments in common market securities under definite restrictions, such as budget constraints, etc. Thus we adapt the entropy diversification measure as well as the conditional principal component decomposition, both proposed by Meucci (2009). We derive a powerful and rigorous theoretical framework describing the geometry of the conditional principal components, which mainly allows us to prove the existence of such decompositions. Furthermore, we apply numerical tests to selected index securities, compare two approaches of portfolio selection (mean diversification vs. mean-variance) and explain the differences that arise between the efficient frontiers. A propagated aim in this thesis is the asset allocation of equally uncorrelated portfolios, which are obviously given by the principal components. Therefore, finally, we back-test several rebalancing strategies based on a principal component decomposition and check whether the resulting portfolios are closely uncorrelated.

Reference no: EM134796

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