A Division of Windham Capital Management, LLC

Assumption on the Distribution of Asset Returns in Full-Scale Optimization

In Full-Scale Optimization, what is the underlying assumption about the distribution of the assets? Are you assuming they are normal or lognormal and then sampling those to push them through the different utility functions, or are you sampling the actual historical distribution?

Answer
We use the historical (empirical) return distribution where the average return (mean) is adjusted to the expected returns defined on the return estimation screen.


Category:Understanding the Software -> Optimization

Categories: