Portfolio optimisers often give results that are extreme and unstable. With so many variables involved, it can be hard to decipher why. This article presents a simplifi ed formula for a two-asset optimisation which will bolster your intuitive understanding of how a portfolio optimiser behaves and why it may behave badly. Download the paper here About…
Continue reading..Junk bond funds are seeing record outflows. This has been described as a 'six-sigma event', in other words, six standard deviations away from the mean weekly flow, something that if normally distributed should only be expected once in millions of years. By definition that's unusual, but in the context of broader investment in riskier corporate…
Continue reading..When I wrote the Devil's Derivatives I looked at the risk modelling behind the ratings of CDOs, bank trading and credit portfolios. Through a combination of bad incentives and leverage, these models performed very badly and contributed to the financial meltdown of 2007-8. Lurking in the background of my analysis was traditional portfolio modelling as…
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