David M. Berns - Modern Asset Allocation for Wealth Management

1 Cover

2 Preface

3 Acknowledgments

4 CHAPTER 1: Preliminaries EXPECTED UTILITY ESTIMATION ERROR A MODERN DEFINITION OF ASSET ALLOCATION NOTES

5 CHAPTER 2: The Client Risk Profile INTRODUCTION MEASURING PREFERENCES INCORPORATING GOALS NOTES

6 CHAPTER 3: Asset Selection INTRODUCTION MOMENT CONTRIBUTIONS MIMICKING PORTFOLIOS A NEW ASSET CLASS PARADIGM NOTES

7 CHAPTER 4: Capital Market Assumptions INTRODUCTION USING HISTORY AS OUR FORECAST ADJUSTING FORECASTS NOTES

8 CHAPTER 5: Portfolio Optimization INTRODUCTION OPTIMIZATION RESULTS TO MPT OR NOT TO MPT? ASSET ALLOCATION SENSITIVITY FINAL REMARKS NOTES

9 Bibliography

10 Index

11 End User License Agreement

1 Chapter 1 FIGURE 1.1 Choice Under Uncertainty: Expected Return vs. Expected Utility FIGURE 1.2 Skew and Kurtosis Effects on a Normal Distribution FIGURE 1.3 Skew and Kurtosis of Common Modern Assets (Historical Data from 1... FIGURE 1.4 Graphical Representation of Utility Functions ( , )FIGURE 1.5 Allocation Sensitivity to ForecastsFIGURE 1.6 Estimation Error vs. Sample Size T (Reprinted with Permission fro...

2 Chapter 2FIGURE 2.1 Risk Aversion QuestionnaireFIGURE 2.2 Risk Aversion MappingFIGURE 2.3 Loss Aversion QuestionnaireFIGURE 2.4 Loss Aversion MappingFIGURE 2.5 Reflection QuestionnaireFIGURE 2.6 Moderation vs. Accommodation of Behavioral BiasesFIGURE 2.7 Balance Sheet ModelFIGURE 2.8 Preference Moderation via SLR

3 Chapter 3FIGURE 3.1 Moment Contribution Example: Long-Term Treasuries Added to a US E...FIGURE 3.2 MPTE Example: Fixed IncomeFIGURE 3.3 Payoffs of Concave and Convex ARPFIGURE 3.4 Preeminent Traditional and Alternative Risk PremiaFIGURE 3.5 Workflow for Creating an Asset Class MenuFIGURE 3.6 A New Asset Class TaxonomyFIGURE 3.7 ARP Moment Contributions

4 Chapter 4FIGURE 4.1 Bootstrap Estimates of Average Monthly Return for US EquitiesFIGURE 4.2 Standard Error of First Four Moment Estimates for US Equities as ...FIGURE 4.3 Standard Error of First Four Moment Estimates for US Equities as ...FIGURE 4.4 Stationarity Test Results (historical data from 1972 to 2018)10FIGURE 4.5 Reasons to Modify Historical EstimatesFIGURE 4.6 Calculation Steps for Return Distribution Shifting and Scaling

5 Chapter 5FIGURE 5.1 Optimization Results for Selected , , and FIGURE 5.2 Comparison with Mean-Variance and Mean-Semivariance Frameworks Wh...FIGURE 5.3 Comparison with Mean-Variance and Mean-Semivariance FrameworksFIGURE 5.4 Error Bars on Optimization Results for Selected , , and FIGURE 5.5 Error Bars on Utility Optimization vs. Risk ParityFIGURE 5.6 Error Bars on Optimization Results as a Function of Sample Size (FIGURE 5.7 Error Bars on Optimization Results as a Function of Asset Univers...

1 Cover

2 Table of Contents

3 Begin Reading

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DAVID M. BERNS, PhD

Copyright © 2020 by David Berns.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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