Extended Viewer

Extended Viewer is temporarily unavailable.

HTML Displayer Portlet

Contributions by Rong Xu

Extended-lister

Nothing was found.
  1. PAPER

    Introducing Multiple-Period Optimization - June 2017 

    Jun 30, 2018 Rong Xu , Scott Liu

    Portfolio Construction and Optimization

    Download Document

    In this paper, we introduce the Multiple-Period Optimization (MPO) - a new feature in the Barra Optimizer.

  2. PAPER

    Product Insight: When you cannot trade the Universe - April 2016 

    May 5, 2016 Rong Xu , Scott Liu

    Portfolio Construction and Optimization

    Download Document

    How would a quantitative portfolio manager replicate the performance of a stock index, knowing it would be impractical to hold every asset in the index, or to trade only a few shares of a stock?  One approach might be to apply cardinality and threshold constraints using the Barra Optimizer.  While these constraints are valuable tools, they are often difficult to manage, since they render portfolio optimization problems discrete and non-convex. In this paper, we present MSCI’s proprietary paring heuristics employed by the Bara Optimizer that deal with cardinality and threshold constraints, explaining how these heuristics have consistently outperformed alternative portfolio construction techniques in both passive and active portfolio management cases.  We also use real-world examples to provide details on two component heuristics—one is the “build-up” heuristic, which emphasizes feasibility;  the other is the “pare-down” heuristic, which stresses optimality.

  3. PAPER

    Research Insight - Managing the Unique Risks of Leverage with the Barra Optimizer - July 2014 

    Jul 30, 2014 Rong Xu , Scott Liu

    Portfolio Construction and Optimization , Risk Management

    Download Document

    Jacobs and Levy recently published a series of papers on “leverage aversion” and the benefits of incorporating it in the traditional Markowitz Mean-Variance Optimization.  They emphasize the uniqueness of leverage risk, in contrast to volatility risk.  Their debate with Markowitz has sparked renewed interest in the theory and application of long-short optimization.  In this Research Insight, we point out that MSCI has been a pioneer in long-short portfolio optimization since the early 1990s. In practice, “leverage aversion” is a leverage penalty term in the Barra Optimizer; thus, Jacobs and Levy’s recent findings are a strong validation of an existing MSCI product.

  4. PAPER

    Research Insight - Managing Odd Lot Trades with the Barra Optimizer - September 2013 

    Sep 23, 2013 Scott Liu , Rong Xu

    Asset Allocation and Asset Liability Management , Investing (Investment Management) , Portfolio Construction and Optimization

    Download Document

    In this Research Insight, we show how the Barra Optimizer uniquely handles round lot optimization. With our technique, a successfully returned “optimal” portfolio will be feasible under all the user-imposed constraints. By comparison, post-optimization roundlotting is simple and straightforward, yet the resulting portfolio may violate one or more constraints. This paper explains how the Barra Optimizer offers both optimal roundlotting and post-optimization roundlotting to help manage cost-effective portfolio construction.

  5. PAPER

    Mitigating Risk Forecast Biases of Optimized Portfolios 

    Sep 26, 2011 Dan Stefek , Jyh-huei Lee , Jay Yao , Rong Xu

    Portfolio Construction and Optimization

    Download Document

    Portfolio managers have long suspected that the risk forecast of an optimized portfolio tends to be optimistic. Many have identified the culprit as estimation error in the covariance matrix. Forecasts based on historical asset covariance matrices are particularly sensitive to this error. The bias is reduced dramatically by using a factor model. Even so, factor models still tend to under-forecast the risk of optimized portfolios, especially the risk coming from factors. In this paper, we show how estimation error may lead to under-forecasting the risk of optimized portfolio. The degree of under-forecasting depends on several factors including the investment style of the portfolio as well as the size of the investment universe. We review MSCI’s new Optimization Bias Adjustment for reducing this forecasting bias and illustrate its effectiveness on portfolios tilting on commonly used styles.

  6. PAPER

    Risk Forecast Biases of Optimized Portfolios - A Quantitative Analysis 

    Sep 20, 2011 Dan Stefek , Rong Xu , Jennifer Bender , Jyh-huei Lee , Jay Yao

    Portfolio Construction and Optimization

    Download Document

    Portfolio managers have long suspected that the risk forecast of an optimized portfolio tends to be optimistic. Many have identified the culprit as estimation error in the covariance matrix. Forecasts based on historical asset covariance matrices are particularly sensitive to this error. The bias is reduced dramatically by using a factor model. Even so, factor models still tend to under-forecast the risk of optimized portfolios, especially the risk coming from factors. In this paper, we show how estimation error may lead to under-forecasting the risk of optimized portfolio. The degree of under-forecasting depends on several factors including the investment style of the portfolio as well as the size of the investment universe. These affects have a  mathematical basis. We quantify them and explain why they occur.  Lastly, we review MSCI’s new Optimization Bias Adjustment for reducing this forecasting bias and illustrate its effectiveness on portfolios tilting on commonly used styles.

  7. PAPER

    Portfolio Optimization with Trade Paring Constraints 

    Feb 15, 2011 Scott Liu , Rong Xu

    Investing (Investment Management) , Portfolio Construction and Optimization

    Download Document

    Trade paring constraints enable portfolio managers to control the number of trades when constructing and rebalancing their portfolios. Allowing users to set trade paring constraints is a new feature in the Barra Optimizer (first available in Aegis 4.4 and also in Barra Open Optimizer 1.2). Portfolio optimization problems involving trade paring constraints are difficult to solve. In this paper, we show that the integrated trade paring approach in the Barra Optimizer, which consists of two innovative, intuitive and complementary heuristics, is viable and effective.

  8. PAPER

    The Effects of Risk Aversion on Optimization 

    Feb 23, 2010 Scott Liu , Rong Xu

    Portfolio Construction and Optimization

    Download Document

    In this paper, we examine the influences of risk aversion on various aspects of portfolio optimization.  Our main message is that the risk aversion parameters in the Barra Optimizer provide users with the flexibility to control or adjust the risk levels of their optimal portfolios.  They are valuable tools for portfolio managers to explore and customize their portfolio optimization results and investment processes.

Regulation