Show that the optimal combination of now leads to strategy

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1. Show that the optimal combination of Now and Later leads to a mixture strategy with the correlation of the mixture and its first lag equal to the decay factor g.

2. Table 14.1 shows both alphas used in a constrained optimization and the modified alphas which, in an unconstrained optimization, lead to the same holdings. Comparing these two sets of alphas can help in estimating the loss in value added caused by the constraints. How? What is that loss in this example? The next chapter will discuss this in more detail.

Text Book: Active Portfolio Management, 2/E By Grinold.o Management, 2/E By Grinold.

Reference no: EM13925386

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