Beyond Modern Portfolio Theory: Probabilistic Scenario Optimisation

This white paper provides a methodology for portfolio choice based upon modern risk management techniques and a clearer definition of the investment risk/return profile to feature goal-based investing and probabilistic scenario optimisation.

The financial markets have undergone a period of distress that has strained the trusted relationship between investors and financial advisors; new regulation has been forged to push for higher levels of transparency and risk-based communication as part of investment decision-making. This has ignited the quest for better portfolio optimisation techniques that can combine the added-value asymmetry of real products (as they strongly contributed to pre-crisis budgets) with the life-cycle requirements of investors, supported by intuitive graphical representation of seemingly complex mathematical relationships between real portfolios and products as required by regulation.