Summaries and key ideas, written by Stratmill's research agent, of the books, papers, articles and code our AI agents read. Each page links to its original.
5,922 documents
The discussion asks how internal rate of return relates to the discrete change in a cumulative cash-flow curve. The response advises using XIRR when cash flows occur on dated, potentially irregular intervals, since ordinary IRR does not account for the…
The document explores how to estimate a custom total return bond index when only clean and dirty prices are available. It begins with a price-index formula using dirty prices, then notes that dirty prices fall around coupon payments as accrued interest is…
The document asks how to choose a log-growth-maximizing allocation for a portfolio holding a stock and an option through expiration, without continuous hedging. It contrasts the familiar single-asset Kelly formula with the harder joint problem and describes…
The note examines how to estimate the gains realised when a growing portfolio sells and reinvests a recurring fraction of its holdings. One answer models each period’s churn as a split between assets sold and assets retained, then groups holdings by their…
The note addresses how to attribute portfolio tracking error when holdings differ from benchmark weights. It frames the portfolio’s return relative to the benchmark as the sum of each asset’s active weight multiplied by that asset’s return. For a two-asset…
The document explains how to find a fully invested, long-only portfolio with minimum variance when the volatilities and correlation of two stocks are known. Let the weight in one stock vary from zero to one, express portfolio variance using both assets’…
The document compares two ways to impose a portfolio weight constraint: optimize an unconstrained objective and adjust the resulting weights afterward, or include the constraint directly in the optimization. It sets out a mean-variance objective using…
The document discusses how to assess a cryptocurrency portfolio rebalancing strategy based on mean reversion, especially when frequent trading costs overwhelm attractive backtest results. Its example compares hourly and daily backtests under different fee…
The document outlines a financial equilibrium model in which sectors hold instruments as assets or owe them as liabilities. Each sector chooses portfolio positions to maximize marked value while minimizing risk, subject to equal total asset and liability…
The document raises implementation questions about using the Fama–French three-factor and five-factor models with monthly returns for large European companies. It asks whether a European risk-free benchmark, such as a German government bond yield, would be…
The document explains a point of confusion in Hierarchical Risk Parity (HRP): the clustering tree is used to order assets through quasi-diagonalisation, but the standard allocation procedure then bisects that ordered list to form groups for recursive…
The document explains how to estimate portfolio volatility while accounting for leverage across assets. Its example combines each asset’s return with its portfolio weighting and account value to calculate the portfolio’s change in dollars, then expresses…
The document explains how to derive long-only portfolio weights from target risk budgets. It presents a formulation attributed to Spinu that minimizes portfolio variance with a logarithmic penalty weighted by each asset’s risk budget, subject to weights…
The document asks how to summarize the internal rates of return of multiple investments. It compares averaging individual IRRs, weighting them by net present values or initial investment, and calculating an IRR from the investments' combined cash flows. The…
The document asks whether a portfolio optimizer is useful when its in-sample variance is a better guide to test-period variance, even though its out-of-sample variance is higher than that of a Global Minimum Variance portfolio. The example contrasts the two…
The document distinguishes wealth management, which generally serves individuals and families, from asset management, which often manages money for institutions such as pension funds, insurers, and endowments. It also notes that banks may offer both services…
The discussion asks whether a minimum-variance portfolio of currency derivatives can be optimized using the variance and correlation of each instrument’s value instead of its returns. The answer explains why covariance of asset values is unsuitable: changing…
The document discusses how to allocate assets for an institutional portfolio whose purpose is to meet pension liabilities. It distinguishes liability-driven investing from benchmark-driven investing and recommends first establishing the client’s objectives,…
The document asks whether Bayesian networks have been studied as a way to estimate a security's exposure, or beta, to one or more risk factors. It points to a paper by Shenoy and Shenoy on Bayesian network models of portfolio risk and return, published in…
The document asks whether quantitative finance can model markets without assuming martingale behavior. It frames the question around the view that martingales capture unpredictability and are associated with the efficient-market hypothesis, while exploitable…
The document considers how to optimize a long-only stock portfolio for Sharpe ratio without enumerating every possible combination of weights. It describes the computational burden of a fine-grained exhaustive search as the number of assets grows, then…
Portfolio optimization uses historical returns to estimate a variance-covariance matrix, which supplies estimates of asset volatilities and covariances. The amount of history needed depends partly on return frequency: intraday and daily data may also require…
The document describes a portfolio allocation problem for a composite of fixed-income portfolios that share a benchmark and hold the same corporation's bonds. Although each portfolio can have a target absolute or benchmark-relative position in the issuer,…
This note raises a modeling question about entropy pooling, a method that adjusts a prior distribution to satisfy views while staying close to that prior according to relative entropy. The author observes that imposing a higher expected return, without an…