Classical asset allocation methods have assumed that the distribution of asset returns is smooth, well behaved with stable statistical moments over time. The distribution is assumed to have constant moments with e.g., Gaussian distribution that can be conveniently parameterised by the first two...

Deriving an optimal asset allocation for institutional investors hinges crucially on the quality of inputs used in the optimization. If the mean vector and the covariance matrix are known with certainty, the classical mean-variance optimization of Markowitz (1952) produces optimal portfolios....