Portfolio Management: Combining Hierarchical Models with Prior Hierarchical Structure

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مدیریت سبد دارایی: ترکیب مدل تشکیل سبد سلسله مراتبی با ساختار سلسله مراتبی پیشینی

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Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 55674 (44)
University: Sharif University of Technology
Department: Management and Economics
Advisor(s): Arian, Hamid Reza; Zamani, Shiva
Abstract:
I investigate methods of integrating prior hierarchical structure into hierarchical portfolio optimization methods. My contributions to the literature are forming a prior hierarchical structure based on investors' priorities and generating a unique representative distance matrix, which can be used as an input to other portfolio optimization methods too. In addition, I use SIC and GICs industry classifications as priory information for S&P500 companies and use them as a complementary input to the Hierarchical Risk Parity model and Hierarchical Equal Risk Contribution and compare the resultant portfolios' performance with (López de Prado, 2019)’s method of integrating prior information and hierarchical portfolio optimization methods without prior information. The results show that the previously mentioned prior information could have additional information that improves the performance of the resultant portfolio. Moreover, the proposed method performs better than (López de Prado, 2019)’s method and the original portfolio optimization methods without integrating prior information
Keywords:
Portfolio Optimization ; Hierarchical Structure ; Hierarchical Risk Parity ; Industry Classification ; Performance Improvement ; Portfolio Management

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