Portfolio Probe Description


	Portfolio Probe Portfolio Probe has two primary functions: • To generate random portfolios. • To optimize portfolio trades. Random portfolios are extremely useful and will dramatically change the practice of fund management. Chanpter 2 of the Portfolio Probe User's Manual contains examples of several applications of random portfolios. The Portfolio Probe User's Manual also contains a number of examples of optimizing trades, one of which should be close to what you want to do. The manual also contains practical advice on performing optimizations regardless of the software used. Key Functionality Generate Random Portfolios Obeying Constraints Generate a list of portfolios (or trades) that obey constraints, but which are indifferent to the utility. Some uses of random portfolios are: • Measure the performance of a fund. • Test your investment process. • Evaluate the effect of constraints -- are they too loose or too tight? • Assess the quality of a risk model. • Bid on unknown portfolios with known characteristics. See Random Portfolios in Finance. Some of these applications are demonstrated in Chapter 2 of the Portfolio Probe User's Manual. Optimally Select a Portfolio Trade Create or update a portfolio of assets. Features include: • Inputs and outputs are in meaningful units. The results need not be post-processed which can save significant labor, and helps with automation. • Specially designed for long-short portfolios. • Bounds on the number of assets to trade and the number of assets in the portfolio. • Ability to limit turnover, tracking error, volatility, expected return. • Mean-variance optimization, maximize the information ratio, mean-volatility optimization, minimize variance, or minimize tracking error. • Different trading costs allowed for long assets, short assets, buys and sells. • Non-linear trading costs allowed (polynomials of arbitrary order, and more generally arbitrary exponents on the number of units traded). • Linear constraints on the portfolio and/or the trade. • These linear constraints may be on either the gross or the net. • User-defined integer constraints (count constraints). • Linear and count constraints may be on just the long-side or just the short-side. • Constraints on sums of the largest weights. • Threshold constraints -- minimal amount of an asset traded, if traded at all. Likewise, portfolio thresholds impose a minimum amount in the portfolio, if present. • Forced trades may be specified. • Multiple benchmarks allowed. • Multiple variances allowed. For example, both a statistical factor model and a fundamental factor model could be used. • Round lotting within the optimization -- trade only in round lots except if the original position is not a round lot. Types of Organizations Portfolio Probe is useful to a number of types of organizations: Traditional Fund Managers Hedge Funds Funds of Funds Consultants Plan Sponsors Brokers Traditional Fund Managers • Trade optimization, generally long-only. • Asset allocation. • Random portfolios for testing prospective trading strategies, for deciding on the most useful constraints, for evaluating performance -- both for internal and external consumption. See Random Portfolios in Finance. Hedge Funds • Trade optimization, generally long-short. • Random portfolios for testing prospective trading strategies, for deciding on the most useful constraints, for evaluating performance -- both for internal and external consumption. See Random Portfolios in Finance. Funds of Funds • Random portfolios for evaluating the performance of funds. See Random Portfolios in Finance. Consultants • Asset allocation, including multiple scenario analysis. • Random portfolios for evaluating the performance of funds, and for creating mandates free of a traditional benchmark. See Random Portfolios in Finance. Plan Sponsors • Asset allocation, including multiple scenario analysis. • Random portfolios for evaluating the performance of funds, and for creating mandates free of a traditional benchmark. See Random Portfolios in Finance. Brokers • Trade optimization for trading and for research. • Random portfolios for research and for bidding on anonymous portfolios. See Random Portfolios in Finance.