Axioma Seminar Series
How To Build Better Portfolios With Multi-Period Optimization
In this seminar, we introduce multi-period optimization (MPO) as a "time-machine" that peeks into future rebalancings in order to make a more informed decision today. MPO dynamically adapts to new information as it becomes available.
Traditional Markowitz portfolio construction is based on a single-period setting. Single period models do not utilize any data or decisions beyond the rebalancing time horizon with the result that their policies are "myopic" in nature.
For long-term investors, MPO offers the opportunity to make "wait-and-see" decisions by including approximate forecasts and decisions beyond the rebalancing time horizon. A multi-period model contains several stages that are coupled together. The first stage represents today's rebalancing, while stages two and beyond represent rebalancings in the future. Each stage includes its own data forecasts, objectives, and local constraints. Successive stages are coupled together via the trades.
We consider the following multi-period portfolio applications in the seminar:
- Trade scheduling: Get from an initial portfolio to a target portfolio over a day while trading-off risk, market impact, and conceivably a short-term alpha.
- Portfolio transition management: Track a dynamic benchmark that is going to reconstitute in the near future over a week while trading-off tracking error and market-impact and also incorporating future cash-inflows.
- Alpha decay: MPO in a two-stage setting that trades-off the strength of the short-term alpha and the slow decay of the long-term alpha in the composite alpha signal.
- Tax optimization: MPO in a two-stage long-only setting that trades-off alpha and delayed sales in order to take advantage of the lower long-term tax rate.
Dates, Locations, Times:
April 23, Andaz Liverpool St., London, 8:30 - 10:30 AM
April 28, Mid-America Club, Chicago, 12:00 – 2:00 PM
April 30, City Club, San Francisco, 8:30 - 10:30 AM
May 5, Langham Hotel, Boston, 12:00 – 2:00 PM
May 7, Princeton Club, New York, 12:00 – 2:00 PM