November 2009
Intermediate to advanced
192 pages
4h 4m
English
Content preview from The Sortino Framework for Constructing PortfoliosBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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Chapter 4. Optimization and Portfolio Selection
Hal Forsey
Executive Summary
In Part 1, Hal Forsey presents a new Forsey–Sortino optimizer that generates a mean–downside risk efficient frontier. Part 2 develops a secondary optimizer that finds the best combination of active managers (to add value) and passive indexes (to lower costs). For the latest research in this area, we recommend the book Optimizing Optimization, by Stephen Satchell at Cambridge University (Elsevier, 2009).
Introduction
It is important for the reader to understand the assumptions that apply to all optimizers before I discuss the development of Sortino Investment Advisors’ portfolio selection routines. Utility theory1 provides a backdrop for discussing the limitations of mathematics ...
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