{"55372":{"#nid":"55372","#data":{"type":"event","title":"Alpha Alignment Factor: A Solution to the Underestimation of Risk for Optimized Active Portfolios","body":[{"value":"\u003Cp\u003E\u003Cstrong\u003ETITLE:\u003C\/strong\u003E Alpha Alignment Factor: A Solution to the Underestimation of Risk for \nOptimized Active Portfolios\u003C\/p\u003E\u003Cp\u003E\u003Cstrong\u003ESPEAKER:\u003C\/strong\u003E Dr. Anureet Saxena\u003C\/p\u003E\u003Cp\u003E\u003Cstrong\u003EABSTRACT:\u003C\/strong\u003E\u003C\/p\u003E\u003Cp\u003EThe underestimation of risk of optimized portfolios is a consistent \ncriticism about risk models. Quantitative portfolio managers have \nhistorically used a variety of ad hoc techniques to overcome this issue \nin their investment processes. In this paper, we construct a theory \nexplaining why risk models underestimate the risk of optimized \nportfolios. We show that the problem is not necessarily with a risk \nmodel, but is rather the interaction of expected returns, constraints, \nand a risk model in an optimizer. We develop an optimization technique \nthat incorporates a dynamic Alpha Alignment Factor (AAF) into the factor \nrisk model during the optimization process. Using actual portfolio \nmanager backtests, we illustrate both how pervasive the underestimation \nproblem can be and the effectiveness of the proposed AAF in correcting \nthe bias of the risk estimates of optimized portfolios.\n\u003Cbr \/\u003E\n\u003Cbr \/\u003ESpeaker bio:\n\u003Cbr \/\u003EDr. Anureet Saxena is a research associate at Axioma Inc. Prior to joining \nAxioma in 2008, he held research positions at Carnegie Mellon University \n(Egon Balas, mentor), Tata Institute of fundamental research (Narendra \nKarmarkar, mentor) and T.J. Watson Research Center (IBM).\n\u003Cbr \/\u003EHis research interests include mixed integer linear and non-linear \nprogramming, stochastic programming and quantitative finance. He has \npublished four scholarly articles in Mathematical Programming and has \ndelivered more than thirty presentations at various professional\nmeetings. Dr. Saxena is the recipient of the 2008 Gerald L. Thompson \ndoctoral dissertation award in management science for his thesis titled \nInteger Programming, a Technology.\u0026nbsp; He holds MS and PhD in industrial\nadministration from Tepper School of Business (CMU), BTech in computer \nscience and engineering from IIT Bombay and is currently a level 2 \ncandidate in the Chartered Financial Analyst (CFA) program.\u003C\/p\u003E","summary":null,"format":"limited_html"}],"field_subtitle":"","field_summary":[{"value":"\u003Cp\u003EAlpha Alignment Factor: A Solution to the Underestimation of Risk for \nOptimized Active Portfolios\u003C\/p\u003E","format":"limited_html"}],"field_summary_sentence":[{"value":"Alpha Alignment Factor: A Solution to the Underestimation of Risk for Optimized Active Portfolios"}],"uid":"27187","created_gmt":"2010-04-14 11:18:19","changed_gmt":"2016-10-08 01:51:18","author":"Anita Race","boilerplate_text":"","field_publication":"","field_article_url":"","field_event_time":{"event_time_start":"2010-04-20T12:00:00-04:00","event_time_end":"2010-04-20T13:00:00-04:00","event_time_end_last":"2010-04-20T13:00:00-04:00","gmt_time_start":"2010-04-20 16:00:00","gmt_time_end":"2010-04-20 17:00:00","gmt_time_end_last":"2010-04-20 17:00:00","rrule":null,"timezone":"America\/New_York"},"extras":[],"groups":[{"id":"1242","name":"School of Industrial and Systems Engineering (ISYE)"}],"categories":[],"keywords":[],"core_research_areas":[],"news_room_topics":[],"event_categories":[],"invited_audience":[],"affiliations":[],"classification":[],"areas_of_expertise":[],"news_and_recent_appearances":[],"phone":[],"contact":[],"email":[],"slides":[],"orientation":[],"userdata":""}}}