A Division of Windham Capital Management, LLC

Parametric Optimization

Parametric optimization is a tool which investors can use to construct a portfolio that maximizes expected returns based on absolute and (or) relative risk. We have four optimization objectives that are specific to an investor’s concern with absolute or relative performance.

Mean-variance (MV) optimization is a portfolio construction technique that identifies combinations of assets that offer the highest expected return for a given level of risk. It assumes the investor is indifferent to a portfolio’s tracking error against a benchmark. This is the framework that Harry Markowitz introduced.

Mean-tracking error (MTE) optimization is a portfolio construction technique that identifies combinations of assets that offer the highest expected return for a given tracking error. It assumes that the investor is indifferent to a portfolio’s total volatility.

Mean-variance-tracking error (MVTE) optimization is a portfolio construction technique that maximizes expected return while minimizing variance and tracking error against a benchmark. It is useful to investors who are concerned with controlling both absolute and relative risk.


Category:Understanding the Software -> Optimization

Categories: