In Focus

Today, there is more written content produced each week than the total amount produced up to 1980. With this vast amount of information and research available, it can be difficult to determine what is important and related to our field. In this section we review, summarize and critique new research, as well as publish our own.

Posted On: 2015-10-20

Leverage can sometimes do more harm than good - when your leveraged account is in drawdown, the effective margin quickly increases as your net equity decreases. At the point you reach the maximum leverage your broker allow, you will either get a margin call or be forced to liquidate some positions. If liquidation is the only option for you it makes it even harder to recover when the market bounces, and you've effectively locked in a loss. There are however precautions you can take to avoid this situation.

We recently published an article describing the formula to find the o...

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Posted On: 2015-04-06

Optimal leverage is exactly what it sounds like - the optimal fraction of your capital to invest, based on the performance of your assets of choice. This fraction can easily be found mathematically, but has naturally a few shortfalls. One thing to be aware of is that it optimizes the growth rate, which can lead to long drawdowns and high volatility which the investor might not be comfortable with. In this article, we will delve into the mathematics behind optimal leverage and discuss some of its benefi ts and shortcomings.

Let's start with the most basic case, for which you...

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Posted On: 2014-11-15

A common pitfall in portfolio optimization is error maximization, which can be caused by an insufficient number of samples, noise and many other factors. One of the main issues is to estimate the covariance matrix. It's trivial to find the sample covariance matrix, but with a limited number of samples we do not know how well the sample covariance matrix represents the actual covariance matrix.

If the sample covariance matrix suffers from estimation e...

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