Portfolio Selection and Asset Pricing: Models of Financial Economics and Their Applications in Investing

  • 4h 43m
  • Erol Hakanoglu, Helen Guo, Jamil Baz
  • McGraw-Hill
  • 2022

This uniquely comprehensive guide provides expert insights into everything from financial mathematics to the practical realities of asset allocation and pricing

Investors like you typically have a choice to make when seeking guidance for portfolio selection?either a book of practical, hands-on approaches to your craft or an academic tome of theories and mathematical formulas.

From three top experts, Portfolio Selection and Asset Pricing strikes the right balance with an extensive discussion of mathematical foundations of portfolio choice and asset pricing models, and the practice of asset allocation. This thorough guide is conveniently organized into four sections:

  • Mathematical Foundations?normed vector spaces, optimization in discrete and continuous time, utility theory, and uncertainty
  • Portfolio Models?single-period and continuous-time portfolio choice, analogies, asset allocation for a sovereign as an example, and liability-driven allocation
  • Asset Pricing?capital asset pricing models, factor models, option pricing, and expected returns
  • Robust Asset Allocation?robust estimation of optimization inputs, such as the Black-Litterman Model and shrinkage, and robust optimizers

Whether you are a sophisticated investor or advanced graduate student, this high-level title combines rigorous mathematical theory with an emphasis on practical implementation techniques.

About the Author

Jamil Baz is a managing director at PIMCO. Prior to that, he was a senior managing director and chief investment strategist of the Man Group. Previously, he was a managing director in macro proprietary trading at Goldman Sachs in London and global chief investment strategist at Deutsche Bank. Earlier in his career, he was a managing director at Lehman Brothers and worked in derivatives and liability management at the World Bank. He holds an AM and a Ph.D. from Harvard University, an SM degree from the MIT Sloan School of Management, and a master's degree from the London School of Economics. He has taught mathematical finance at Oxford University for 20 years.

Helen Guo is an executive vice president at PIMCO, specializing in research and modeling to provide customized solutions to clients on asset allocation and risk management. She is a member of the Research Committee of the Institute for Quantitative Research in Finance (Q Group). She holds a Ph.D. in economics and a master's degree in statistics from Stanford University.

Erol Hakanoglu is a senior advisor at PIMCO. He is managing partner of Hakanoglu Quantitative Strategies LLC, an analytic advisory firm he founded. Previously, he was at Goldman Sachs for 22 years, where he was a managing director and global head of capital markets strategies, and later at Lehman Brothers and Barclays as a managing director and global head of enterprise risk management. He is a member of the steering committee of the financial engineering program at the University of California Berkeley’s Haas Business School and has been a guest lecturer at Harvard, Columbia, and Berkeley. Dr. Hakanoglu holds a Ph.D. and a master's degree from Harvard University and an undergraduate degree from Columbia University.

In this Book

  • Introduction
  • Functional Analysis in Real Vector Spaces
  • Optimization in Discrete Time
  • Optimization in Continuous Time
  • Utility Theory
  • Uncertainty—Basics of Probability and Statistics
  • Uncertainty—Stochastic Processes and Calculus
  • Single-Period and Continuous-Time Portfolio Choice
  • An Example of Asset Allocation for a Sovereign
  • Liability-Driven Asset Allocation
  • Equilibrium Asset Pricing
  • Factor Models
  • Derivatives Pricing
  • Interest Rate Models
  • Risk Premia
  • Motivations for Robust Asset Allocation
  • Risk Budgeting Approach to Asset Allocation
  • Black–Litterman Model
  • Shrinkage
  • Robust Optimizers