Portfolio optimization benefits from integrating analysis of risk, strategy, and valuation

07/08/2002
Optimization of oil and gas assets within a portfolio requires analysis and techniques that go beyond the efficient frontier favored by the traditional portfolio theory developed to optimize stock portfolios.1 Four numerical techniques, specifically adapted to portfolio analysis, when applied in an integrated manner, provide significant insight to how groups of oil and gas assets can be best combined to form optimum portfolio under strategic constraints. Called here "the four S's," they are:Simulation-to quantify levels of uncertainty.Statistics-to focus analysis on (downside) risk without limiting (upside) opportunity.Simplex-linear program algorithm that converges analysis towards o...
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