Does Portfolio Probe perform robust optimization?
There is an unfortunately large number of meanings for the word “robust” (even when coupled with “optimization”), but in this case the meaning relates to the fact that the inputs to an optimization are not known explicitly. An optimization depends on a variance matrix and (usually) expected returns of the assets. The variance matrix is an estimate and always contains some noise. The expected returns contain a very large amount of noise. A standard optimization tells you the best trade to make if the variance matrix and the expected returns were known exactly. Robust optimization (in the current sense) does some modification to take account of the noise in the inputs. Portfolio Probe has no special modes nor features for robust optimization. So in that sense the answer to the question is, “no”. However, a form of robust optimization can be done with Portfolio Probe (and most other optimizers) quite simply. Assume the most common case that we have a portfolio in place and we are consider
