Return Based Style Analysis is an optimization technique described by Richard Sharpe in a 1992 Financial Analysts Journal article. Essentially it computes the optimal portfolo of assets which will replicate a target return stream while holding the target portfolio alpha constant. We can constrast this with a least squares fit approach to the same problem, where the sum of squared residuals is minimized, leading to a alpha of 0. This document describes the implementation of RBSA included in the akutan project. |