TY - CHAP
T1 - Dynamic Portfolio Optimization
T2 - Beyond MPT
AU - Lindquist, W. Brent
AU - Rachev, Svetlozar T.
AU - Hu, Yuan
AU - Shirvani, Abootaleb
N1 - Publisher Copyright:
© 2022, The Author(s), under exclusive license to Springer Nature Switzerland AG.
PY - 2022
Y1 - 2022
N2 - Optimization based solely on the REIT returns in a historical time window is severely restricted by that set of realized historical returns, leaving the portfolio vulnerable to downturns unseen in the historical data. Dynamic portfolio optimization, which determines portfolio composition using a massive ensemble of return predictions that are statistically consistent with historical returns but include extreme events safeguard against this vulnerability. Dynamic optimization, based upon ARMA-GARCH models with heavy-tailed innovations and non-Gaussian copulas, is developed in this Chapter for mean variance and conditional value-at-risk measures as well as for the Black–Litterman model. Dynamically optimized portfolios comprised of domestic REITs are computed and their performance compared to corresponding portfolios optimized under the classical historical return approach. Fairly dramatic performance improvement is seen under dynamic optimization.
AB - Optimization based solely on the REIT returns in a historical time window is severely restricted by that set of realized historical returns, leaving the portfolio vulnerable to downturns unseen in the historical data. Dynamic portfolio optimization, which determines portfolio composition using a massive ensemble of return predictions that are statistically consistent with historical returns but include extreme events safeguard against this vulnerability. Dynamic optimization, based upon ARMA-GARCH models with heavy-tailed innovations and non-Gaussian copulas, is developed in this Chapter for mean variance and conditional value-at-risk measures as well as for the Black–Litterman model. Dynamically optimized portfolios comprised of domestic REITs are computed and their performance compared to corresponding portfolios optimized under the classical historical return approach. Fairly dramatic performance improvement is seen under dynamic optimization.
UR - http://www.scopus.com/inward/record.url?scp=85142097176&partnerID=8YFLogxK
U2 - 10.1007/978-3-031-15286-3_7
DO - 10.1007/978-3-031-15286-3_7
M3 - Chapter
AN - SCOPUS:85142097176
T3 - Dynamic Modeling and Econometrics in Economics and Finance
SP - 93
EP - 112
BT - Dynamic Modeling and Econometrics in Economics and Finance
PB - Springer Science and Business Media Deutschland GmbH
ER -