The New Science of Asset Allocation Risk Management in a Multi–Asset World

A feasible asset allocation framework for the post 2008 financial world

Asset allocation has long been a cornerstone of prudent investment management; however, traditional allocation plans failed investors miserably in 2008. Asset allocation still remains an essential part of the investment arena, and through a new approach, you'll discover how to make it work.

In The New Science of Asset Allocation, authors Thomas Schneeweis, Garry Crowder, and Hossein Kazemi first explore the myths that plague this field then quickly move on to examine how the practice of asset allocation has failed in recent years. They then propose new allocation models that employ liquidity, transparency, and real risk controls across multiple asset classes.
* Outlines a new approach to asset allocation in a post-2008 world, where risk seems hidden
* The "great manager" problem is examined with solutions on how to capture manager alpha while limiting downside risk
* A complete case study is presented that allocates for beta and alpha

Written by an experienced team of industry leaders and academic experts, The New Science of Asset Allocation explains how you can effectively apply this approach to a financial world that continues to change.

Preface: Asset Allocation In A Post-2008 World. Acknowledgments. Chapter 1 A Brief History of Asset Allocation. In the Beginning. A Review of the Capital Asset Pricing. Asset Pricing in Cash and Derivative Markets. Models of Return and Risk Post-1980. Asset Allocation in the Modern World. Product Development: Yesterday, Today and Tomorrow. Notes. Chapter 2 Measuring Risk. What is Risk? Traditional Approaches to Risk Measurement. Classic Sharpe Ratio. Other Measures of Risk Assessment. Portfolio Risk Measures. Other Measures of Portfolio Risk Measurement. Value at Risk. Notes. Chapter 3 Alpha and Beta, and the Search for a True Measure of Manager Value. What is Alpha? Issues in Alpha and Beta Determination. Problems in Alpha and Beta Determination. Multi-Factor Return Estimation: An Example. Tracking Alternatives in Alpha Determination. Notes. Chapter 4 Asset Classes: What They Are And Where To Put Them. Overview and Limitations of the Existing Asset Allocation Process. Asset Allocation in Traditional and Alternative Investments: A Road Map. Historical Return and Risk Attributes and Strategy Allocation. Traditional Stock/Bond Allocation versus Multi-Asset Allocation. Risk and Return Comparisons Under Differing Historical Time Periods. Extreme Market Sensitivity. Market Structure or Market Sensitivity: Does It Matter? How New is New? Notes. Chapter 5 Strategic, Tactical, and Dynamic Asset Allocation. Asset Allocation Optimization Models. Strategic Asset Allocation. Tactical Asset Allocation. Dynamic Asset Allocation. Notes. Chapter 6 Core and Satellite Investment: Market/Manager Based Alternatives. Determining the Appropriate Benchmarks and Groupings. Sample Allocations. Core Allocation. Satellite Investment. Algorithmic and Discretionary Aspects of Core/Satellite Exposure. Replication-Based Indices. Peer Group Creation Style Purity. Notes. Chapter 7 Sources of Risk and Return in Alternative Investments. Asset Class Performance. Hedge Funds. Managed Futures (Commodity Trading Advisors). Private Equity. Real Estate. Commodities. Notes. Chapter 8 Return and Risk Differences among Similar Asset Class Benchmarks. Making Sense Out of Traditional Stock and Bond Indices. Private Equity. Real Estate. Alternative REIT Investments Indices. Commodity Investment. Hedge Funds. Investable Hedge Fund Indices. CTA Investment. Index versus Fund Investment. Notes. Chapter 9 Risk Budgeting and Asset Allocation. Process of Risk Management: Multi-Factor Approach. Process of Risk Management: Volatility Target. Risk Decomposition of Portfolio. Risk Management Using Futures. Risk Management Using Options. Covered Call. Long Collar. Notes. Chapter 10 Myths of Asset Allocation. Myth 1: Investor Attitudes not Economic Information Drive Asset Values. Myth 2: Diversification across Equity Issues or Countries is Sufficient. Myth 3: Recent Historical Security and Index Performance May Be A Source for Future Excess Risk Adjusted Returns. Myth 4: Recent Manager Fund Return Performance Provides the Best Forecasts of Future Return. Myth 5: Superior Managers or Superior Investment Ideas Do Not Exist. Myth 6: Performance Analytics Provide a Complete Means to Determine Better Performing Managers. Myth 7: Fund NAVs Based on Spot Market Prices Better Reflect Actual Values than Fund NAVs Based on Derivatives. Myth 8: Stock and Bond Investment Means Investors Have No Derivatives Exposure. Myth 9: Stock, Bond and Mutual Fund Investment Removes Investor Concerns as to Leverage. Myth 10: Given the Efficiency of the Stock and Bond Markets, Managers Provide No Useful Service. Myth 11: Investors Can Rely on Academics, Investment Professionals and Professional Soothsayers to Provide Current Investment Models and Theories. Myth 12: Alternative Assets Are Riskier Than Equity and Fixed Income Securities. Myth 13: Alternative Assets such as Hedge Funds Are Absolute Return Vehicles. Myth 14: Alternative Investments Such as Hedge Funds Are Unique in Their Investment Strategies. Myth 15: Hedge Funds are Black Box Trading Systems Unintelligible to Investors. Myth 16: Hedge Funds Are Traders Not Investment Managers. Myth 17: Alternative Investment Strategies Are So Unique That They Cannot be Replicated. Myth 18: It Makes Little Difference which Traditional or Alternative Indices Are Used in an Asset Allocation Model. Myth 19: Modern Portfolio Theory is Too Simplistic to Deal with Private Equity, Real Estate, and Hedge Funds. Notes. Chapter 11 The Importance of Discretion in Asset Allocation Decisions. The Why and Wherefore of Asset Allocation Models. Value of Manager Discretion. Manager Evaluation and Review: The Due Diligence Process. Madoff: Due Diligence Gone Wrong or Never Conducted. Notes. Chapter 12 Asset Allocation: Where Is It Headed? An Uncertain Future. What is the Definition of Order? Costs and Benefits. Today's Issue. Possible Governmental and Private Fund Responses to Current Market Concerns. Notes. Glossary. Bibliography. About the Authors. Index.