Advanced REIT Portfolio Optimization: Innovative Tools for Risk Management

Description

This book provides an investor-friendly presentation of the premises and applications of the quantitative finance models governing investment in one asset class of publicly traded stocks, specifically real estate investment trusts (REITs). The models provide highly advanced analytics for REIT investment, including: portfolio optimization using both historic and predictive return estimation;model backtesting;a complete spectrum of risk assessment and management tools with an emphasis on early warning systems, risk budgeting, estimating tail risk, and factor analysis; derivative valuation;and incorporating ESG ratings into REIT investment. These quantitative finance models are presented in a unified framework consistent with dynamic asset pricing (rational finance). Given its scope and practical orientation, this book will appeal to investors interested in portfolio optimization and innovative tools for investment risk assessment. Foreword About This Book Contents Abbreviations Chapter 1: The Real Estate Investment Market: The Current State and Why Advances Are Needed References Chapter 2: The Data 2.1 REIT Asset Descriptions 2.1.1 Domestic REITs 2.1.2 International REITs 2.2 Real Estate Stock Descriptions 2.3 Benchmarks 2.3.1 Indices 2.3.2 Exchange Traded Funds 2.3.3 Mutual Funds 2.4 Additional Assets and Indices 2.5 Data Observations References Chapter 3: Modern Portfolio Theory 3.1 Return Time Series 3.2 MPT-Based Portfolios 3.2.1 Markowitz Mean-Variance Portfolio 3.2.2 Capital Market Line and the Markowitz Mean-Variance Tangent Portfolio 3.2.3 CVaR-Minimizing Portfolios 3.2.4 Capital Market Line and the CVaRα Tangent Portfolio 3.2.5 Criticisms of Mean-Variance Optimization 3.3 Black-Litterman Model 3.4 Historical Optimization References Chapter 4: Historical Portfolio Optimization: Domestic REITs 4.1 Basic Strategies, Price, and Return Performance 4.1.1 Long-Only Strategy 4.1.2 Jacobs et al. Long-Short Strategy 4.1.3 Lo-Patel Long-Short Strategy 4.1.4 Long-Short Momentum Strategy 4.2 Performance Under Turnover Constraints 4.3 Performance-Risk Measures 4.4 Observations References Chapter 5: Diversification with International REITs 5.1 International Portfolio Performance 5.1.1 Long-Only International Portfolios 5.1.2 Jacobs et al. Long-Short International Portfolios 5.1.3 Lo-Patel Long-Short International Portfolios 5.2 Global Portfolio Performance 5.2.1 Long-Only Global Portfolios 5.2.2 Jacobs et al. Long-Short Global Portfolios References Chapter 6: Black-Litterman Optimization Results 6.1 Domestic Portfolios 6.2 Global Portfolios Chapter 7: Dynamic Portfolio Optimization: Beyond MPT 7.1 Dynamic Optimization 7.1.1 ARMA(1,1)-GARCH(1,1) with Student´s t-Distribution 7.1.2 Multivariate t-Distribution and t-Copulas 7.1.3 Generation of Dynamic Returns 7.1.4 Combining the Dynamic Approach with Black-Litterman Optimization 7.2 Portfolio Optimization Using Dynamic Returns 7.2.1 Dynamic Long-Only Portfolios 7.2.2 Dynamic Jacobs et al. Long-Short Portfolios 7.2.3 Dynamic Lo-Patel Long-Short Portfolios 7.3 Dynamic Optimization with the Black-Litterman Model References Chapter 8: Backtesting 8.1 VaR Tests 8.1.1 Binomial Test 8.1.2 Traffic Light Test 8.1.3 Kupiec´s Tests 8.1.4 Christoffersen´s Tests 8.1.5 Haas´s Tests 8.2 Backtest Results 8.2.1 Historical Optimization 8.2.2 Dynamic Optimizations References Chapter 9: Diversification with Real Estate Stocks Chapter 10: Risk Information and Management 10.1 Early Warning Systems 10.1.1 Chow Test for a Structural Break 10.1.2 Early Warning Based on Tail-Loss Ratio 10.1.3 Early Warning Based on Mahalanobis Distance 10.1.3.1 Copulas 10.1.3.2 Mahalanobis Distance 10.2 Asset Weighting 10.3 Risk Budgets: Incremental and Component Risk 10.3.1 Incremental, Marginal, and Component VaR 10.3.2 Computing VaR, IVaR, MVaR, and ciVaR 10.3.3 Portfolio Results 10.4 Factor Analysis References Chapter 11: Optimization with Performance-Attribution Constraints 11.1 Performance-Attribute Constraints 11.2 Application to Domestic REIT Portfolio References Chapter 12: Option Pricing 12.1 Double Subordinated Pricing Models 12.2 Option Pricing Under the Double Subordinated IG Model 12.3 Empirical Example 12.3.1 Choice of a and vmax 12.3.2 Option Price and Implied Volatility Surfaces 12.4 Volatility Measures Appendix 1 Appendix 2 References Chapter 13: Inclusion of ESG Ratings in Optimization 13.1 REIT ESG Data 13.2 ESG-Valued Returns 13.3 ESG-Valued Optimization 13.4 The ESG Efficient Frontier 13.5 ESG-Valued Tangent Portfolios 13.5.1 Tangent Portfolio Performance over Time 13.6 ESG-Valued Reward-Risk Measures References Chapter 14: Inclusion of ESG Ratings in Option Pricing 14.1 Discrete Return Binomial Pricing Model 14.2 ESG-Valued Return Binomial Pricing Model 14.3 ESG-Valued Option Pricing Using a REIT Portfolio as the Underlying References