Many investment products nowadays are actively managed against broad market indices. It is not an easy task to beat the market indices. The basic premise is to forecast returns for various segments of the market and then to combine the segments in ways that are different from the index to obtain a higher return.
Many results are analytically tractable in terms of multivariate statistics.
Curiously, Schwarz inequality appears in our analysis as we discuss a portfolio strategy that optimizes TAA's Sharpe ratio. There is, however, no clearly defined recipe for its implementation. In particular, the appropriate implementation will depend on the size of the institution's portfolio and the complexity of the financial instruments contained within it. In all cases, the problem presents many interesting mathematical, statistical and computational challenges. This presentation will introduce Value at Risk, discuss why it is a valuable tool in portfolio analysis and address some of the complex business and technical issues it raises.