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The Journal of Portfolio Management—Subjective distributions for tactical asset allocation

Research explores how to express views on market returns through a derivative overlay.

April 2025

Key Insights
  • The authors construct an asset return distribution by performing a risk adjustment to the risk-neutral distribution implied by option prices.
  • They show how this initial distribution can be modified to reflect an investor’s subjective views on asset returns.
  • The authors then solve an optimal investment problem to determine how these subjective views should be reflected in portfolio derivative positioning.

In this research published in the Journal of Portfolio Management, Gerard Brunick and Robert Harlow consider the problem of an active manager who would like to express views on market returns through a derivative overlay on an equity portfolio.

 

 

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202502-4202082

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