A Simple Stock-Bond Categorization of Alternative Investments

Posted: 21 May 2019

See all articles by William W. Jennings

William W. Jennings

U.S. Air Force Academy - Department of Management

Date Written: December 31, 2008

Abstract

I create a tool to help investors categorize an investment in a diversifying, alternative asset class. Using standard portfolio mathematics, I obtain a precise analytical solution to the proportion of the new investment that should be considered stock-like and the proportion that should be considered bond-like. These proportions rely on whether the alternative asset is funded from stocks or bonds. The resulting formula can readily incorporate the parameter ambiguity that often surrounds alternative assets. While the approach is reductionist, categorical thinking about alternative assets can help investment decision-making, particularly by non-specialists.

Keywords: mean-variance optimization, alternative investments, asset allocation, portfolio choice, pension investment, non-profit investment, endowment investment

JEL Classification: G11, G23

Suggested Citation

Jennings, William W., A Simple Stock-Bond Categorization of Alternative Investments (December 31, 2008). Available at SSRN: https://ssrn.com/abstract=1287395 or http://dx.doi.org/10.2139/ssrn.1287395

William W. Jennings (Contact Author)

U.S. Air Force Academy - Department of Management ( email )

2354 Fairchild Drive
Suite 6H-94
Academy, CO 80840-2944
United States

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