Portfolio Construction and Asset Allocation

Agenda Program Online
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Available exclusively as online seminar
Price of online training
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Attend this 3-day training seminar and learn about:

Modern Portfolio Theory Framework and going beyond MPT
The Approaches to Forecasting Expected Returns
Risk-Based Investment Strategies and Estimating Risk
Portfolio Construction beyond Mean and Variance
Tail Risk and Drawdown Risk Management
Diversification in a Non-Normal and Non-Linear World
This seminar is a three-day journey covering the latest trends in portfolio construction and asset allocation and putting them in context of 50 years of portfolio construction research. The approach of this course is top-down and practical, providing guidance for practitioners how to take their asset allocation activities one step further and delivering valuable insights for potential practical implementation of more advanced quantitative techniques. The program is designed to accommodate plenum discussions and features concept applications in six group exercises.

Target Audience: chief investment officers, quantitative analysts, investment committee members, senior management.

Program of the seminar: Portfolio Construction and Asset Allocation

09.00 - 09.10 Welcome

09.10 - 12.15


  • Contemporary Challenges
    • Financial Crisis of 2008
    • Low-Yield Environment
    • Coronavirus Pandemic of 2020

Review of Modern Portfolio Theory (MPT) & Going beyond MPT

  • From Mean-Variance Optimization to the CAPM
    • Applications of MPT
    • Active Management
    • Liability-Aware Portfolio Construction
    • Asset Class Investing
    • “Passive” Investing
    • Core-Satellite Approaches
  • Critical Assessment and Constructive Take-Aways from MPT
  • Framework for Going “Beyond MPT”
    • The case for adaptive asset allocation in a dynamic World which is hard to forecast
    • The latest industry trends: Factor Investing and Smart Beta

Exercise: a practical approach to take into account factor information in portfolio construction

12.15 - 13.15 Lunch Break

13.15 - 17.00

Expected Returns

  • The importance of expected return in portfolio construction and challenges: estimation risk
  • Do optimizers need expected returns? Spoiler alert: no, they don’t
  • Approaches to forecasting expected returns
    • Scenario-based methods
    • Deriving returns from scores and ranks
    • Building allocations from scores and ranks without optimizers
    • Incorporating active views: relative forecasts
    • Bayesian methods: the Black/Litterman model and noise filtering using shrinkage methods

Exercise: developing a basic scenario-based approach to tactical asset allocation based on macroeconomic indicators

09.00 - 12.15

Risk-Based Investment Strategies & Estimating Risk

  • Risk-based approaches to investing: minimum variance, risk parity, risk budgeting, equal-weighting, maximum diversification
  • Drivers of success of risk-based strategies
  • Time-varying risk characteristics, empirical risk anomalies
    • Autocorrelation and volatility clustering, GARCH models
    • The positive relationship between equity risk and return over time
    • The relative importance of volatilities and correlations
  • Estimation of the covariance matrix
    • Sample covariances, EWMA and GARCH estimators
    • Bayesian shrinkage estimators
    • Filtering noise in covariances: Random Matrix Theory
    • Modelling and tweaking correlations: consistency issues & solutions, correlation scenarios and stress testing

Exercise: developing a quantitative volatility trading strategy and potential applications for tactical asset allocation

12.15 - 13.15 Lunch Break

13.15 - 17.00

Estimation Risk and Estimation Risk Management

  • Estimation risk as risk in input parameters
  • A scenario-based approach to estimation risk management
  • The stochastic nature of efficient frontiers: confidence bands, the Resampled Efficient Frontier™
  • Distortions in risk and return estimates: the impact of liquidity and survival biases, statistical unsmoothing approaches, evidence-based multiplier approaches
  • Portfolio Optimisation: Markowitz
  • Robust portfolio construction: modelling uncertainty, regret minimization

09.00 - 12.15

Portfolio Construction beyond Mean and Variance

  • Risk measurement for non-normal assets: LPM/UPM, VaR/CVaR, Drawdown risk
  • Higher Moments: interpretation, uses and challenges
  • Behavioural portfolio construction: implementing insights from Prospect Theory
  • CVaR and LPM optimization: exact methods and approximations
  • Understanding optimization algorithms: threshold accepting, simulated annealing, evolutionary methods, random portfolios
  • Multi-criteria optimization: case study calculating sustainability-efficient portfolios and frontiers

Tail Risk Management

  • The normal distribution assumptions in Finance
  • Interesting non-normal distributions: non-normal mixture, NIG and Cornish-Fischer distributions
  • Non-Normal Risk Budgeting based on Modified VaR/CVaR
  • Building non-normal portfolios from elliptical distributions
  • Drawdown Risk Management: CPPI 2.0

12.15 - 13.15 Lunch Break

13.15 - 17.00

Diversification in a Non-Normal and Non-Linear World

  • Diversification is more than correlation: overdiversification, diworsification
  • Taking into account correlation asymmetries in portfolio construction: a closer look at equities, bonds and gold
  • Non-linear correlation measures and their limitations: the case of the Spearman rank correlation coefficient
  • Introduction to Copula Theory: potential and current limitations

Exercise: Extracting bivariate copulas from time series data for non-PhDs

Model Risk Management for Investment Management

  • Forecast risk equals model risk plus estimation risk
  • Approaches to managing model risk of investment portfolios: from practical approaches to introducing model risk policies
  • Beware: Illusion of control

Summary and Outlook

Termination and Evaluation of the Seminar

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