Quant analytics: Robust Bayesian Allocation question

(Last Updated On: January 7, 2012)
Learn the Secret

Get  our 2 Free Books

Get these now which land directly to their inbox.
Invalid email address

Quant analytics: Robust Bayesian Allocation question

How do I interpret the v_i — the numerator in formula (21) which calculates gamma_sigma — in the paper Robust Bayesian Allocation?

In the associated MATLAB code : http://www.mathworks.com/matlabcentral/fileexchange/31419, v_i seems to index the volatility of a particular portfolio along the efficient frontier identified by the sample covariance (ds_hat) and sample mu.

Below are the specific MATLAB code excerpts and my questions after the %:

PickVol = round( .8 * NumPortf ) % Why the arbitrary choice of .8?

v = ( ds_hat( PickVol ) ) ^ 2 % Why the use of ds_hat as opposed to use of Bayesian efficient frontier?


Robust Bayseian Allocation

Using the Bayesian posterior distribution of the market parameters we define self-adjusting uncertainty regions for the robust mean-variance problem. Under a…



The efficient frontier (standard, Bayesian, or robust Bayesian) can be parametrized by the target volatility of the respective portfolio on the frontier, which is a free, positive parameter. That is the coefficient you see.
In the specific case, I am implementing the robust Bayesian formula (21) inhttp://www.symmys.com/node/102 but the same target appears in the standard formula (1) and in the robust formula (3)



NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!
This entry was posted in Quant Analytics and tagged , , , , on by .

About caustic

Hi i there My name is Bryan Downing. I am part of a company called QuantLabs.Net This is specifically a company with a high profile blog about technology, trading, financial, investment, quant, etc. It posts things on how to do job interviews with large companies like Morgan Stanley, Bloomberg, Citibank, and IBM. It also posts different unique tips and tricks on Java, C++, or C programming. It posts about different techniques in learning about Matlab and building models or strategies. There is a lot here if you are into venturing into the financial world like quant or technical analysis. It also discusses the future generation of trading and programming Specialties: C++, Java, C#, Matlab, quant, models, strategies, technical analysis, linux, windows P.S. I have been known to be the worst typist. Do not be offended by it as I like to bang stuff out and put priorty of what I do over typing. Maybe one day I can get a full time copy editor to help out. Do note I prefer videos as they are much easier to produce so check out my many video at youtube.com/quantlabs