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v2.63 1 March 2017

DRIP Asset Allocation is a collection of model libraries for MPT framework, Black Litterman Strategy Incorporator, Holdings Constraint, and Transaction Costs.

DRIP Asset Allocation is composed of the following main model libraries:

  • MPT Framework Model Library
  • Black Litterman Model Library
  • Holdings Constraint Model Library
  • Transaction Cost Model Library

For Installation, Documentation and Samples, and the associated supporting Numerical Libraries please check out DRIP.

DRIP Core Technical Specifications

DRIP Supporting Technical Specifications

Additional Documentation

Samples (Asset Allocation)

Samples (Transaction Cost)

Features

MPT Framework Model Library

  • MPT Core Mathematical Model
  • CAPM Asset Pricing

Black Litterman Model Library

The Black Litterman Model

  • Canonical Black-Litterman Reference Model
  • Computing the Equilibrium Returns
  • Specifying the Views
  • View Distribution in the Asset Space
  • Specifying Omega
  • Omega Proportional to the Variance of the Prior
  • Using Confidence Inteval for Omega
  • Omega as the Variance of Residuals from a Factor Model
  • Using Idzorek's Method for Omega
  • The Estimation Model
  • Theil's Mixed Estimation Model
  • The PDF Based Approach
  • Using Bayes' Theorem for the Estimation Model
  • The Alternate Reference Model
  • The Impact of Tau
  • Calibration of Tau
  • Black Litterman Model Implementation Steps
  • Extensions to the Black Litterman Model

Black Litterman Model Attributions

  • Analysis of the Unconstrained Optimal Portfolio
  • Impact of an Incremental Projection
  • Projection Distribution Dependence on Parameters
  • Black Litterman Intuition Numerical Examples

Incorporating User Specified Confidence Levels

  • Estimating the Excess Returns Distribution
  • Reverse Optimization of Expected Returns
  • The Black Litterman Model
  • Building the Inputs
  • Fine Tuning the Model
  • Method for Incorporating User-Specified Confidence Levels
  • Implied Confidence Levels
  • The Tilt-Based Intuitive Approach

Simplified Black Litterman Surplus Optimizer

  • Black Litterman Surplus Optimizer Inputs
  • Cash Flow Projections and Liability Returns

Transaction Costs Model Library

Execution of Portfolio Transactions - Optimal Trajectory

  • Defining a Trading Strategy
  • Price Dynamics
  • Temporary Market Impact
  • Capture and Cost of Trading Trajectories
  • Linear Impact Functions
  • The Efficient Frontier of Optimal Execution
  • The Definition of the Frontier
  • Explicit Construction of Optimal Strategies
  • The Half-Life of a Trade
  • Structure of the Frontier
  • The Utility Function
  • Value-at-Risk
  • The Role of Utility in Execution
  • Choice of Parameters
  • The Value of Information
  • Drift
  • Gain due to Drift
  • Serial Correlation
  • Parameter Shifts
  • Numerical Optimal Trajectory Generation

Non-linear Impact and Trading-Enhanced Risk

  • The Model
  • Nonlinear Cost Functions
  • Objective Functions
  • Almgren (2003) Example
  • Trading-Enhanced Risk
  • Constant-Enhanced Risk
  • Linear-Enhanced Risk
  • Almgren (2003) Nonlinear Example Sample

Market Impact Function/Parameters Estimation

  • Data Description and Filtering Rules
  • Data Model - Variables
  • Trajectory Cost Model
  • Permanent Impact
  • Temporary Impact
  • Choice of the Functional Form
  • Cross-Sectional Description
  • Model Determination
  • Determination of the Coefficients
  • Residual Analysis

Optimal Execution of Program Trades

  • Efficient Frontier Pricing of Program Trades
  • The Efficient Frontier Including Discount
  • Performance Measures
  • Annualization
  • Definition of the Information Ratio
  • Applications of the Information Ratio

Bayesian Trading with a Daily Trend

  • Price Motion Using Bayesian Update
  • Bayesian Inference
  • Trading and Price Impact
  • Optimal Trading Strategies
  • Trajectory by Calculus of Variations
  • Optimality of the Bayesian Adaptive Strategy
  • Stochastic Optimal Control Treatment

Cost Adaptive Arrival Price Trading

  • Adaptive Strategies - Trading in Practice
  • AIM/PIM, and Prospect Theory
  • Market Model and Static Trajectories
  • Non-dimensionalization
  • Small Portfolio Limit
  • Portfolio Comparison
  • Single Update - Mean and Variance
  • Almgren and Lorenz (2007) Results Replication
  • Continuous Response - Numerical Results Comparison

Optimal Trading in a Dynamic Market

  • Limitations of Arrival Price Frameworks
  • The Liquidation Problem
  • The Cost of Trading
  • Constant Coefficients
  • Coordinated Variation
  • Rolling Time Horizon Approximation Strategy
  • Small Impact Approximation
  • Dynamic Programming - Fully Co-ordinated Version
  • Log-Normal Model and Non-dimensionalization
  • Constant Market
  • Long Time Asymptote
  • Dynamic Programming - Custom Volatility and Liquidity
  • Log-normal Volatility/Liquidity
  • Coordinated Variation of Volatility and Liquidity
  • Long/Short Time Asymptotic Behavior
  • HJB Based Numerical Solution
  • HJB Grid Time Discretization
  • HJB Grid Space Discretization
  • Almgren (2009, 2012) Solutions Replication

Market Making Models

  • Width/Skew/Size Estimation Models
  • Market Making System SKU
  • Market Making Parameter Types
  • Intra-day Pricing Curve Generation Schemes
  • Mid-Price Models
  • Width Models
  • Skew Models
  • Size Model
  • Heuristic Controls
  • Flow Analysis

Licence

Apache 2.0

Contact

[email protected]