Title：Quantitative Portfolio Optimisation, Asset Allocation and Risk Management
     Author：Mikkel Rasmussen
     Edition：March 19, 2003
     Format：High Quality pdf Non-scanned Version
     Pages：444 pages
     Publisher：Palgrave Macmillan
     Reference：http://www.amazon.com/gp/reader/1403904588/ref=sib_dp_pt/105-0534350-4110008#reader-link

CONTENTS
List of Figures ix
List of Tables xiv
PART I A BASIS FOR QUANTITATIVE MANAGEMENT
AND ANALYSIS 1
Chapter 1 Asset Management Basics 3
Introduction 3
Asset Management Objectives 4
The Case for Quantitative Management 4
Structure of this Book 6
Chapter 2 Asset Returns 9
Defining Investment Returns 9
Examples from the Real World 12
Excess Returns and Risk-free Rates 18
Residual/Abnormal Returns 19
Time-weighted Returns (TWR) 20
Summary 20
Appendix 20
Chapter 3 Asset Risk 23
Risk is Not Just a Four-letter Word 23
Defining Risk 26
ABrief Note on Normality 35
Summary 37
Chapter 4 Asset Pricing 38
Pricing and Valuation 38
Determining the Discount Rate 39
The Dividend Discount Model (DDM) 41
The Discounted Cash Flow Model (DCF) 43
Old vs. New Economy – A Valuation Example 50
Implied Growth Rates 59
The Capital Asset Pricing Model (CAPM) 63
The Security Market Line (SML) 63
The Characteristic Line (CL) 66
The Arbitrage Pricing Theory (APT) 68
Summary 70
PART II MODERN PORTFOLIO THEORY 71
Chapter 5 Portfolio Characterisation 73
Introduction 73
Portfolio Return – The Sum of its Parts 74
Portfolio Risk – Less Than the Sum of its Parts 75
The Nature of Diversification 87
Summary 91
Appendix 92
Chapter 6 Quantitative Portfolio Optimisation and
Efficient Portfolios 97
Portfolio Efficiency 97
Quantitative Portfolio Optimisation 99
The Efficient Frontier 111
Benefits from International Diversification 117
Optimisation and Diversification 125
Summary 127
Appendix 128
Chapter 7 Estimating Model Parameters 138
Expected Return and Risk 138
The CAPM Revisited 139
Factor Models – The APT Revisited 143
Volatility and Correlation 146
Return Distributions (Risk Characterisation) 153
The Correlation Structure 158
Summary 162
CONTENTS
vi
PART III ASSET ALLOCATION 165
Chapter 8 Investment Objectives and Benchmark Selection 167
The Investment Policy Statement 167
Choosing the Benchmark 171
Summary 175
Chapter 9 Quantitative Portfolio Construction and
Asset Allocation 177
The Asset Allocation Decision 177
Traditional Portfolio Construction Techniques 178
Quantitative Portfolio Optimisation for Asset Allocation 186
Introducing an MSCI Global Sector Model 194
Summary 199
Chapter 10 Quasi-Random Monte Carlo Simulated Asset
Allocation (QRMCSAA) 201
Quantitative Optimisation and Monte Carlo Simulations 201
The Efficient Ridge 205
The Quasi-Random Monte Carlo Simulated
Asset Allocation 215
Summary 223
Appendix 225
Chapter 11 Refining the QRMCSAA Model 239
Bayesian Priors and Stein Estimators 239
Optimal Return Shrinkage 242
Optimal Covariance Matrix Shrinkage 255
Summary 270
Chapter 12 Strategic and Tactical Asset Allocation 273
Introduction 273
SAA vs. TAA – Theory 274
SAA vs. TAA – Practice 281
Summary 290
Chapter 13 Sector Rotation 291
The Sector Rotation Framework 291
Conceptual Framework 293
A Note on Determining Appropriate Model Inputs 299
Asset Allocation Through the Business Cycle 303
Summary 313
vii
CONTENTS
PART IV QUANTITATIVE RISK MANAGEMENT 315
Chapter 14 Tracking Error and Information Ratio 317
Definitions of Tracking Error 317
Risk Geometry 320
Information Ratio 324
Active Management Value Added 327
Summary 330
Chapter 15 Sector Risk Model 332
The Global Perspective 332
Risk Characterisation 333
Constructing the Model 340
Portfolio Risk-Management Implications 345
MSCTR and MSCAR for the Global Sector Model 347
The Efficient Ridge Revisited 359
General Thoughts on Active Risk Management 364
Summary 375
Appendix 15A: Sector Indices and Volatilities 377
Appendix 15B: Sector Returns 380
Appendix 15C: Sector Return Distributions 383
Appendix 15D: Portfolio Volatility and Tracking Error 386
Appendix 15E: Portfolio Beta 389
Chapter 16 Value-at-Risk (VaR) and Extreme Value Theory (EVT) 392
The Basics 392
Variance–Covariance VaR 395
Historical Simulation of VaR 396
Multivariate Normal Distributions 404
Monte Carlo Simulated VaR 414
VaR Along the Efficient Frontier 415
Marginal Contributions to VaR 416
Extreme Value Theory (EVT) 419
Summary 421
Appendix 16A: Sector Tail Return Frequencies 423
Appendix 16B: Sector Multivariate Normal Distribution 426
Appendix 16C: Sector Extreme Value Charts 429
Appendix Notation 432
Glossary 434
Index 441