By Gabriel Vasconcelos
Overview
There are several ways to do portfolio optimization out there, each with its advantages and disadvantages. We already discussed some techniques here. Today I am going to show another method to perform portfolio optimization that works very well in large datasets because it produces very robust weights, which results in a good out-of-sample performance. This technique is called Parametric Portfolio Policies (PPP) and it was proposed by Brandt, Santa-Clara and Valkanov in 2009 (click here to read the full article).