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Multi-Asset Investing: A practical guide to modern portfolio management by Yoram Lustig

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12. Optimisation

Optimisation is the process of identifying an asset allocation with either a maximum expected return under a set of constraints (mainly risk), or minimum risk under a set of constraints (mainly expected return). In other words, optimisation is used to derive an efficient asset allocation with the highest possible expected return for a certain risk level or minimum risk level for a target expected return. Optimisation normally requires a quantitative method [182] and a computer program. The optimisation program basically follows an iterative process whereby it tries different asset allocation mixes until the maximum or minimum value is reached while satisfying the constraints (if it is possible to do so).

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