Foreword

Ron Dembo

At the heart of every investment decision lies the question “what will be the value of a given portfolio at some future time horizon?”. By definition, the future value is uncertain. There are a range of future possible outcomes depending on the market scenarios that are possible. The decision to invest in a given portfolio will depend on the trade-off between the possible downside and upside, or risk and reward. This is subjective for each investor and is a function of their preferences: tolerance for risk and desire for performance.

This book features an excellent description of Modern Portfolio Theory, which still forms the basis for many investment decisions. It also does an excellent job of describing the Black–Litterman methodology, a more modern enhancement. Paolo Sironi’s key contribution, however, is in making scenario analysis and the very general Mark-to-Future approach accessible to goal-based investing. He describes in great detail how to simulate investment strategies over time while accounting for an investor’s risk–return profile.

This is not only a theoretical treatise but one based on many years of experience of real-world investment decision-making.

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