Risk and Asset Allocation

by Attilio Meucci

This encyclopedic, detailed exposition spans all the steps of one-period allocation from the foundations to the most advanced developments.

Multivariate estimation methods are analyzed in depth, including non-parametric, maximum-likelihood under non-normal hypotheses, shrinkage, robust, and very general Bayesian techniques. Evaluation methods such as stochastic dominance, expected utility, value at risk and coherent measures are thoroughly discussed in a unified setting and applied in a variety of contexts, including prospect theory, total return and benchmark allocation.

Portfolio optimization is presented with emphasis on estimation risk, which is tackled by means of Bayesian, resampling and robust optimization techniques.

All the statistical and mathematical tools, such as copulas, location-dispersion ellipsoids, matrix-variate distributions, cone programming, are introduced from the basics. Comprehension is supported by a large number of figures and examples, as well as real trading and asset management case studies.

At symmys.com the reader will find freely downloadable complementary materials: the Exercise Book; a set of thoroughly documented MATLAB(r) applications; and the Technical Appendices with all the proofs. More materials and complete reviews can also be found at symmys.com.

Genres: Finance, Mathematics, Textbooks

532 pages, Hardcover

First published January 1, 2005

Reviews

[Will Shoemaker · Rating 5 out of 5]

Good, I understood some of it

[Max Lybbert · Rating 3 out of 5]

Not a bad book, but not what I was looking for. The book has extensive coverage of distributions (normal, lognormal, Cauchy, Student's t, Chi, Wishart), factor models, common mistakes people make with factor models, mean-variance optimization, Bayesian analysis, Black-Litterman, estimation error, etc. It covers topics I didn't know exist.

Easily includes more than a thousand equations, most discussed in detail. But, it's not always obvious which ones represent something that should be calculated, and which represent idealized functions.

Personally, I prefer William Sharpe's abandoned textbook, although Sharpe covers less ground.

[Frank Ashe · Rating 2 out of 5]

Way too mathematical! But then this isn't aimed at the general audience, it's aimed at the people who want to bring a lot of mathematics to the idea of portfolio construction. For a more practical approach to the same problems, call me.

Buy this as a reference work if you like portfolio construction as a branch of pure maths.

(I've got a PhD in maths, so it's not the depth that bothers me, it's the use of the maths.)

[Daniel · Rating 4 out of 5]

Somewhat glorified portfolio optimisation; author clearly knowledgeable across the board though.

[Joris Esch · Rating 5 out of 5]

Meucci offers the best available mathematical finance foundation applicable to the investment industry (buy-side).