Selecting individual assets. Weighting portfolios towards assets which the manager or analyst expects to perform well, net of market and common factor movements. These basic active management styles are typically combined by the active manager to create his or her own investment strategy. Active management ican focus on increasing portfolio utility. That is, you have expected returns that can be expressed numerically, and you have a particular tradeoff between risk and return.
Managers prefer portfolios with higher utility values to portfolios with lower utility.
Optimization programs help construct superior portfolios based on this idea of increasing utility. Alpha is the average expected excess return of your portfolio, omega is portfolio risk, while lambda is your risk aversion, indicating your personal view of the tradeoff between risk and return. In no event shall FAAM,its employers, or its sponsor be liable for any damages of any kind or character, including without limitation any compensatory, incidental, direct, indirect, special, punitive, or consequential damages, loss of use, loss of data, loss of income or profit, loss or damage to property, claims of third parties, or other losses of any kind or character, even if FAAM or its sponsor has been advised of the possibility of such damages or losses, arising out of or in connection with the use of this Web Site or any Web Site with which it is linked. These pages, and all contents, are Copyright 1999. All rights reserved.