We had our first taste of the problem with mean-variance optimization at a hedge fund some years back. We loaded the positions into an optimizer, pressed the button, and discovered 25% of the ...

We formulate a novel Markov regime-switching factor model to describe the cyclical nature of asset returns in modern financial markets. Maintaining a factor model structure allows us to easily derive ...

(a) in the limit of low uncertainty in estimated asset mean returns, the robust portfolio converges toward the mean-variance portfolio obtained with the same inputs, and (b) in the limit of high ...