Standard risk optimisation of a traditional assets (like stocks and bonds) is pretty straight forward, I have been optimising and backtesting a stock, bond & REIT portfolio on Swanest.

I am looking to combine alternative assets like investment wine, whisky & P2P lending into my portfolio, is it possible to have remotely a similar optimisation approach?

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    Are these alternative assets continually priced in a market, such that at any given time the price you'd get for selling them is known? Otherwise, this feels like a moot question. – a CVn May 25 '16 at 20:50
  • To varying extents Michael. They can range from daily Live-ex data from dedicated exchanges to monthly auction prices and listed amazon prices which can change at random intervals. The data is there if its looked for but its an inherently different type of market place compared to that the main stock exchanges. – Marcus Williamson May 27 '16 at 7:57

I'd trust something like a private equity firm to be able to do something like this, but unless there's a listed index for each of your assets, it would be rather tedious and most likely inaccurate.

I've heard of volatility models to measure the value of illiquid and alternative assets, but I'm not too well versed in these to give a comment. Good to see you're including them in your portfolio though, makes me think I need to start doing the same!

  • Im not sure they are combining them however as there does not seem to be demand for the crossover between asset classes (alternative & traditional). I think its a really wise move to spread across very different assets which each have a process of appreciation to some extent. – Marcus Williamson Jun 6 '16 at 9:30
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    Just remember though, that the infrequent trading of these alternative assets causes illiquidity, which in turn negatively skews the real value of said assets. That's why I believe that including them into an optimisation formula is inaccurate. Regardless, they definitely need to be included, but be prepared to hold those for very long periods of time (some assets trade every 70 or so years). – QuantumLoopy Jun 6 '16 at 11:01

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