- Strategy asset allocation decisions, Beta management
- Minimization of variance
- Maximization of Sharpe Ratio
- Time-varying variances & covariances
The first step of a core-satellite approach is the beta management i.e the strategic asset allocation decision. The goal is to implement a quantitative process for the management of the European equity portion of portfolio. To design the efficient benchmark, we have used the static approach (risk diversification) but also the dynamic approach (risk hedging). To design the strategic benchmark, we minimize the variance under three constraints: no short selling (wi ³ 0), no investment in cash (?wi = 1), no excess of concentration (wi Î [1%;10%]). We estimate the variance-covariance matrix and the average return, which are the inputs, to generate the optimal allocations, which are the outputs of the Markovitz solver.