School of Business
16 Jul 2020
Online Zoom discussion

Beyond the Markowitz Model: Portfolio Diversification and Optimal ESG Portfolios

Financial Engineering Seminar Series

Market data on a dark screen.

This talk will focus on two topics — a drawback of the mean variance theory, which yields highly concentrated portfolios that lead to a higher market risk, and optimal ESG portfolios.

Two approaches for increasing mean variance portfolio diversity will be discussed. The first is based on replacing Pearson’s correlations in portfolio covariance matrix with partial correlations conditioned on the entire market return. In another approach, the minimizing objective function is expanded with an additional term that explicitly controls portfolio diversity. Both approaches yield more diversified portfolios and may outperform the classical mean variance portfolios.

This talk will also explain an idea based on expanding the minimizing objective function with an additional term that controls portfolio ESG value, or PESGV. PESGV is assumed proportional to the sum of portfolio constituents’ weighted ESG scores. Partial correlations based ESG portfolios are more diversified, and have higher PESGV, than the Pearson’s correlations-based ESG portfolios.

Presenter: Alec Schmidt

Alec Schmidt headshotDr. Anatoly (Alec) Schmidt has been an adjunct professor at finance and risk engineering at NYU's Tandon School since 2013. He also taught financial engineering of Stevens Institute of Technology, and was a visiting professor at Moscow Financial Academy and at Financial Engineering, Nanyang Technological University. Dr. Schmidt was lead research scientist at Kensho Technologies until Februaruy. His current research is focused on quantitative equity investing.

About this series

The Financial Engineering Seminar Series is a recurring event featuring thought leaders from industry and academia, who bring their experiences to a variety of important topics in this discipline. For more on financial engineering at Stevens, visit the master's program homepage.

Back to Events