1st Edition

Portfolio Optimization and Performance Analysis

By Jean-Luc Prigent Copyright 2007
    456 Pages 74 B/W Illustrations
    by Chapman & Hall

    In answer to the intense development of new financial products and the increasing complexity of portfolio management theory, Portfolio Optimization and Performance Analysis offers a solid grounding in modern portfolio theory. The book presents both standard and novel results on the axiomatics of the individual choice in an uncertain framework, contains a precise overview of standard portfolio optimization, provides a review of the main results for static and dynamic cases, and shows how theoretical results can be applied to practical and operational portfolio optimization.

    Divided into four sections that mirror the book's aims, this resource first describes the fundamental results of decision theory, including utility maximization and risk measure minimization. Covering both active and passive portfolio management, the second part discusses standard portfolio optimization and performance measures. The book subsequently introduces dynamic portfolio optimization based on stochastic control and martingale theory. It also outlines portfolio optimization with market frictions, such as incompleteness, transaction costs, labor income, and random time horizon. The final section applies theoretical results to practical portfolio optimization, including structured portfolio management. It details portfolio insurance methods as well as performance measures for alternative investments, such as hedge funds.

    Taking into account the different features of portfolio management theory, this book promotes a thorough understanding for students and professionals in the field.

    Utility Theory
    Preferences under uncertainty
    Expected utility
    Risk aversion
    Stochastic dominance
    Alternative expected utility theory

    Risk Measures
    Coherent and convex risk measures
    Standard risk measures

    Static Optimization
    Mean-variance analysis
    Alternative criteria
    Further reading

    Indexed Funds and Benchmarking
    Indexed funds
    Benchmark portfolio optimization
    Further reading

    Portfolio Performance
    Standard performance measures
    Performance decomposition
    Further reading

    Dynamic Programming Optimization
    Control theory
    Lifetime portfolio selection
    Further reading

    Optimal Payoff Profiles and Long-Term Management
    Optimal payoffs as functions of a benchmark
    Application to long-term management
    Further reading

    Optimization within Specific Markets
    Optimization in incomplete markets
    Optimization with constraints
    Optimization with transaction costs
    Other frameworks
    Further reading

    Portfolio Insurance
    The option-based portfolio insurance
    The constant proportion portfolio insurance
    Comparison between OBPI and CPPI
    Further reading

    Optimal Dynamic Portfolio with Risk Limits
    Optimal insured portfolio: discrete-time case
    Optimal insured portfolio: the dynamically complete case
    Value-at-risk and expected shortfall-based management
    Further reading

    Hedge Funds
    The hedge funds industry
    Hedge funds performance
    Optimal allocation in hedge funds
    Further reading



    Jean-Luc Prigent

    "The book will be interesting both to academic and professional readers, for it well introduces modern portfolio problems, which can be studied theoretically and/or practically."
    Mathematical Reviews

    "…the text is easy to follow. The illustrations provided nicely blend with the theory and discussions. … the book should be very attractive to graduate students with an interest in portfolio theory and researchers in the specified field. …"
    MAA Reviews, July 2008