Introduction

Paolo Sironi

Investment banking, asset management and wealth management are sophisticated industries that correspond to the investment needs of a large population of investors (institutional and private individuals) who require quantitative but intuitive solutions for investment decision-making. Products with mathematically complex payoffs (eg, structured notes) are nowadays broadly traded on financial markets and distributed to final investors. Yet, institutional portfolio management is often based upon rules of thumb and simplifications, such as the usage of benchmarks to proxy real investments. This can affect the coherence of optimal portfolio analysis and lead to inefficient capital allocations across risk factors and asset classes. This book addresses a renewed interpretation of portfolio choice based upon a modern risk management perspective and a clearer definition of the investors’ risk–return profile. The probability of achieving a desired target return (ie, a return target for an investment fund, a return ambition for a private investor) or minimising risk (ie, a value-at-risk (VaR) limit for a trading desk, a potential capital loss for a private investment) is chosen as the