This tutorial written and reproduced with permission from Peter Ponzo We’re attaching a personal “Utility” to the prospect of receiving $x, namely U(x). For example, we might choose the Utility Function U(x) = SQRT(x) so that we attach to a gain of $10,000 a “Utility” of SQRT(10,000) = 100 and […]
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This tutorial written and reproduced with permission from Peter Ponzo One often attempts to find some optimal strategy by varying certain parameters. Perhaps the problem is to find the optimal allocation of assets between stocks and bonds, given the Mean and Volatility of each asset. Perhaps it’s to decide the […]
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This tutorial written and reproduced with permission from Peter Ponzo Once upon a time, in 1952, Harry Markowitz introduced “Modern Portfolio Theory” and the “Mean-Variance optimization” and … Figure 1 Huh? You pick a “risk” which you’re comfortable with (they equate Risk = Standard Deviation), then vary your […]
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This tutorial written and reproduced with permission from Peter Ponzo When I first saw the movie A Beautiful Mind I hadn’t heard of John Nash. So I browsed the Net to see what won him the Nobel Prize … a paper which Nash apparently described as his most trivial work! […]
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This tutorial written and reproduced with permission from Peter Ponzo In a neat article in the Journal of Financial Planning, Gobind Daryanani has a very interesting application of sensitivity analysis to problems in finance. We consider a variable z which depends upon two random variables x and y, like so: […]
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