Financial Education

Mean-variance optimization is subject to significant levels of error due to the need to estimate return, risk and correlation for each asset class included. As a result, no single optimization can lend much confidence in the output.

Many investors will take several simulations to generate efficient frontiers under a variety of assumptions regarding return, risk and covariance. These simulations can be integrated into a single resampled efficient frontier.

A resampled efficient frontier tends to result in a more diversified portfolio and an asset allocation that remains more stable over time.

For more information, see all articles on: Asset Allocation, FInancial Planning, Institutional Investing, Investment Returns, Portfolio Management

See also:

Asset Allocation Using Black-Litterman Optimization

Mean-Variance Optimizers in Asset Allocation

Expected Utility Asset Allocation

Dynamic and Static Approaches to Asset Allocation

The Effect of Asset Allocation on Portfolio Performance