Asset Allocation Approaches

Mean-variance Frontier – the outer edge of all possible risky asset (R vs sigma)

Efficient Frontier – with the highest return for a give sigma

Global Minimum Variance

Once 2 points on the efficient frontier are determined, any points can be found from these 2 points

Resampling Efficient Frontier

Regenerate the same efficient frontier with different weights. Then average the weights of each asset to form the final efficient frontier. This is more stable.

Constraint Portfolio

-       Cannot short sell

-       When one of the asset dropped from positive to 0 weight, this is a corner portfolio

-       Sigma of portfolio formed by linear combination of corner portfolios can be formed by linear combinations of the sigmas of the corner portfolio