“It is interesting, chemically, no doubt,” I answered, “but practically —” Dr. Watson in “Study in Scarlet” Multivariate statistical analysis is frequently used in quantitative finance, risk management, and portfolio optimization. A basic rule says that one should diversify in order to spread financial risk. The question is how to assign weights to the different portfolio positions. Here we analyze a so-called mean-variance optimization that leads to weights that minimize risk given a budget constraint. Equivalently, we may optimize the weights of a portfolio for maximal return given a bound on the risk structure. The discussion naturally leads to links to the capital asset pricing model (CAPM).
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© 2007 Springer Science+Business Media, LLC
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(2007). Applications in Finance. In: Multivariate Statistics. Springer, New York, NY. https://doi.org/10.1007/978-0-387-73508-5_17
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DOI: https://doi.org/10.1007/978-0-387-73508-5_17
Publisher Name: Springer, New York, NY
Print ISBN: 978-0-387-70784-6
Online ISBN: 978-0-387-73508-5
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