Stochastic Portfolio Theory

by E. Robert Fernholz

Overview

Shastic portfolio theory is a mathematical methodology for constructing sk portfolios and for analyzing the effects induced on the behavior of these portfolios by changes in the distribution of capital in the market.

Shastic portfolio theory has both theoretical and practical applications: as a theoretical tool it can be used to construct examples of theoretical portfolios with specified characteristics and to determine the distributional component of portfolio return. On a practical level, shastic portfolio theory has been the basis for strategies used for over a decade by the institutional equity manager INTECH, where the author has served as chief investment officer.

This book is an introduction to shastic portfolio theory for investment professionals and for students of mathematical finance. Each chapter includes a number of problems of varying levels of difficulty and a brief summary of the principal results of the chapter, without proofs.

Product Details

ISBN-13:	9780387954059
Publisher:	Springer New York
Publication date:	04/12/2002
Series:	Stochastic Modelling and Applied Probability , #48
Edition description:	2002
Pages:	178
Product dimensions:	6.14(w) x 9.21(h) x 0.36(d)

Table of Contents

1 Shastic Portfolio Theory.- 2 Sk Market Behavior and Diversity.- 3 Functionally Generated Portfolios.- 4 Portfolios of Sks Selected by Rank.- 5 Stable Models for the Distribution of Capital.- 6 Performance of Functionally Generated Portfolios.- 7 Applications of Shastic Portfolio Theory.- Appendix A. Evaluation of Local Times.- References.

Editorial Reviews

From the reviews:

MATHEMATICAL REVIEWS

"We recommend this monograph to all researchers and graduate students in mathematical finance; it is easy to read, self-contained, not boring at all, and with lots of ideas for further research."

"The monograph introduces shastic portfolio theory, a novel mathematical framework for analyzing portfolio behavior and equity market structure, and which is intended for investment professionals and students of mathematical finance. … We recommend this monograph to all researchers and graduate students in mathematical finance; it is easy to read, self-contained, not boring at all, and with lots of ideas for further research." (Gheorghe Stoica, Mathematical Reviews, 2003 a)

"This book develops a descriptive theory of portfolios in financial markets. … It can be used as a theoretical tool to provide insight into questions of market equilibrium and arbitrage, and to construct portfolios with controlled behaviour. In practice, it can be applied to portfolio optimization and performance analysis, and the tools developed will be useful for these purposes. … it will help to understand why certain investment strategies produce certain results … ." (Martin Schweizer, Zentralblatt MATH, Vol. 1049, 2004)

From the Publisher