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Portfolio Optimization: Revolutionizing Risk Assessment Systems

In: Economics Gone Astray

Author

Listed:
  • Blu Putnam
  • Graham McDannel
  • Veenit Shah

Abstract

Challenges to optimization abound in the world of portfolio construction and financial risk assessment. While financial optimization theory is highly sophisticated, with detailed attention paid to model construction and critical assumptions, the current state of practice leaves much to be desired, and may best be described as a patchwork quilt held together by band aids or the ubiquitous duct tape. On the horizon, however, are some potential improvements in the analytical techniques underpinning how optimization methods are used in both portfolio construction and financial risk management. From the promise of exhaustive searches using quantum computers to the advances in pattern recognition available through structured machine learning, financial optimization methods are about to get a major makeover. Change may be coming, and it’s about time!…

Suggested Citation

  • Blu Putnam & Graham McDannel & Veenit Shah, 2019. "Portfolio Optimization: Revolutionizing Risk Assessment Systems," World Scientific Book Chapters, in: Economics Gone Astray, chapter 11, pages 131-148, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781944659592_0011
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    More about this item

    Keywords

    Economics; Macroeconomics; Monetary Policy; Fiscal Policy; Inflation; Risk Management; Federal Reserve; Quantitative Easing; Taylor Rule;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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