NO.PZ202212280100002101
问题如下：
A. Explain,
compared to the standard MVO process, and based on Finnegan’s circumstances:
i. two advantages of using a resampled efficient
frontier.
ii. one advantage of using the Black-Litterman approach.
iii. two advantages of using a Monte Carlo simulation.
选项：
解释：
i. Advantages of using a resampled efficient frontier:
The resampled efficient frontier approach generates portfolios that are more stable through time than those derived using standard mean-variance optimization (MVO). Finnegan stated that she was dissatisfied with the high level of turnover and transaction costs she incurred in her portfolio using standard MVO. A portfolio that is more stable would reduce turnover and transaction costs, and be more appropriate for Finnegan.
The resampled efficient frontier approach generates portfolios that are more diversified than those derived using standard MVO. Finnegan stated that she has below-average risk tolerance until she finds a new job. A more diversified portfolio should be less volatile, meeting Finnegan’s lower risk tolerance requirement.
ii. Advantages of using the Black-Litterman approach:
The Black-Litterman (BL) approach incorporates the investor’s views. Finnegan has a positive view of the European retail clothing sector. The BL approach allows her to incorporate these views, while standard MVO does not.
The BL approach generates portfolios that are more diversified than those derived using standard MVO. Finnegan stated that she has below-average risk tolerance until she finds a new job. A more diversified portfolio should be less volatile, meeting Finnegan’s lower risk tolerance requirement.
iii. Advantages of using a Monte-Carlo simulation:
Monte Carlo simulations allow for portfolio rebalancing under changing tax rates and in multi-period situations. Finnegan’s effective tax rate will likely increase sharply when she starts a new job. MVO does not consider these factors.
Monte Carlo simulations can compute path-dependent terminal wealth. Finnegan hopes to make a deposit on a home for her sister within the year, provided she finds a new job. Cash flows in and out of a portfolio and the sequence of returns will have a material effect on terminal wealth – this is termed path-dependent. In Finnegan’s case, the deposit would be a significant cash outflow, resulting in lower terminal wealth.
- two advantages of using a resampled efficient frontier
The first advantage of resample efficient frontier is that it will lead to more diversified portfolio. The second advantage is that it build better optimization process, which leads to the target weights more stable.
2. one advantage of using the Black-Litterman approach. It combines the reversal optimization results and managers' view on the expected return of assets, which has more efficiency.
3. two advantages of using a Monte Carlo simulation.
The first advantage is that the Monte Carlo simulation address the limitation of traditional MVO approach as it is multi-period model.
The second advantage is that Monte Carlo situation considers the effects of taxes, costs cash addition and cash withdraws, which means it solves the path dependency problems.
