DRIP Asset Allocation

As of 2.63 Drip is being transitioned. Please email [email protected] for any other details while in transition.

v2.63 1 March 2017

DRIP Asset Allocation is a collection of model libraries for MPT framework, Black Litterman Strategy Incorporator, Holdings Constraint, and Transaction Costs.

DRIP Asset Allocation is composed of the following main model libraries:

• MPT Framework Model Library
• Black Litterman Model Library
• Holdings Constraint Model Library
• Transaction Cost Model Library

For Installation, Documentation and Samples, and the associated supporting Numerical Libraries please check out [DRIP] (https://github.com/lakshmiDRIP/DRIP).

##Features

###MPT Framework Model Library

• MPT Core Mathematical Model
• CAPM Asset Pricing

###Black Litterman Model Library ####The Black Litterman Model

• Canonical Black-Litterman Reference Model
• Computing the Equilibrium Returns
• Specifying the Views
• View Distribution in the Asset Space
• Specifying Omega
• Omega Proportional to the Variance of the Prior
• Using Confidence Inteval for Omega
• Omega as the Variance of Residuals from a Factor Model
• Using Idzorek's Method for Omega
• The Estimation Model
• Theil's Mixed Estimation Model
• The PDF Based Approach
• Using Bayes' Theorem for the Estimation Model
• The Alternate Reference Model
• The Impact of Tau
• Calibration of Tau
• Black Litterman Model Implementation Steps
• Extensions to the Black Litterman Model

####Black Litterman Model Attributions

• Analysis of the Unconstrained Optimal Portfolio
• Impact of an Incremental Projection
• Projection Distribution Dependence on Parameters
• Black Litterman Intuition Numerical Examples

####Incorporating User Specified Confidence Levels

• Estimating the Excess Returns Distribution
• Reverse Optimization of Expected Returns
• The Black Litterman Model
• Building the Inputs
• Fine Tuning the Model
• Method for Incorporating User-Specified Confidence Levels
• Implied Confidence Levels
• The Tilt-Based Intuitive Approach

####Simplified Black Litterman Surplus Optimizer

• Black Litterman Surplus Optimizer Inputs
• Cash Flow Projections and Liability Returns

###Transaction Costs Model Library ####Optimal Execution of Portfolio Transactions

• Defining a Trading Strategy
• Price Dynamics
• Temporary Market Impact
• Capture and Cost of Trading Trajectories
• Linear Impact Functions
• The Efficient Frontier of Optimal Execution
• The Definition of the Frontier
• Explicit Construction of Optimal Strategies
• The Half-Life of a Trade
• Structure of the Frontier
• The Utility Function
• Value-at-Risk
• The Role of Utility in Execution
• Choice of Parameters
• The Value of Information
• Drift
• Gain due to Drift
• Serial Correlation
• Parameter Shifts
• Numerical Optimal Trajectory Generation

####Nonlinear Impact Functions and Trading Enhanced Risk

• The Model
• Nonlinear Cost Functions
• Objective Functions
• Almgren (2003) Example
• Trading-Enhanced Risk
• Constant-Enhanced Risk
• Linear-Enhanced Risk
• Almgren (2003) Nonlinear Example Sample

####Market Impact Function/Parameters Estimation

• Data Description and Filtering Rules
• Data Model - Variables
• Trajectory Cost Model
• Permanent Impact
• Temporary Impact
• Choice of the Functional Form
• Cross-Sectional Description
• Model Determination
• Determination of the Coefficients
• Residual Analysis

####Principal Program Trades

• Efficient Frontier Pricing of Program Trades
• The Efficient Frontier Including Discount
• Performance Measures
• Annualization
• Definition of the Information Ratio
• Applications of the Information Ratio

####Market Making Models

• Width/Skew/Size Estimation Models
• Market Making System SKU
• Market Making Parameter Types
• Intra-day Pricing Curve Generation Schemes
• Mid-Price Models
• Width Models
• Skew Models
• Size Model
• Heuristic Controls
• Flow Analysis

##Contact

[email protected]