Principles of Asset Allocation

Free CFA Level III: Private Markets lesson in Asset Allocation. 45 min read, ~6,747 words.

MVO is an "error maximizer": a tiny input change (e.g. +50 bps to one return) produces extreme, concentrated allocations. Corner portfolios define where asset classes enter/exit the frontier; any efficient portfolio is a blend of two adjacent corners. Reverse optimization extracts implied returns from market-cap weights, avoiding estimation error; the...