portfolio optimization

Applying a global optimisation algorithm to Fund of Hedge Funds portfolio optimisation

  • Bernard Minsky
  • M Obradovic
  • Qi Tang
  • Rishi Thapar
    • Categories Applications - OR and Management Sciences, Finance and Economics, Global Optimization Tags , , ,

    Portfolio optimisation for a Fund of Hedge Funds (“FoHF”) has to address the asymmetric, non-Gaussian nature of the underlying returns distributions. Furthermore, the objective functions and constraints are not necessarily convex or even smooth. Therefore traditional portfolio optimisation methods such as mean-variance optimisation are not appropriate for such problems and global search optimisation algorithms could … Read more

    A VaR Black-Litterman Model for the Construction of Absolute Return Fund-of-Funds

  • Miguel A. Lejeune
    • Categories Finance and Economics, Stochastic Programming Tags , , , , , ,

    The objective of this study is to construct fund-of-funds (FoF) that follow an absolute return strategy and meet the requirements imposed by the Value-at-Risk (VaR) market risk measure. We propose the VaR-Black Litterman model which accounts for the VaR and trading (diversification, buy-in threshold, liquidity, currency) requirements. The model takes the form of a probabilistic … Read more

    On the Role of the Norm Constraint in Portfolio Selection

  • Jun-ya Gotoh
  • Akiko Takeda
    • Categories Finance and Economics Tags , , , , , , , ,

    Recently, several optimization approaches for portfolio selection have been proposed in order to alleviate the estimation error in the optimal portfolio. Among such are the norm-constrained variance minimization and the robust portfolio models. In this paper, we examine the role of the norm constraint in the portfolio optimization from several directions. First, it is shown … Read more

    Robust Portfolio Optimization with Derivative Insurance Guarantees

  • Daniel Kuhn
  • Berc Rustem
  • Steve Zymler
    • Categories Finance and Economics, Robust Optimization Tags , , ,

    Robust portfolio optimization finds the worst-case portfolio return given that the asset returns are realized within a prescribed uncertainty set. If the uncertainty set is not too large, the resulting portfolio performs well under normal market conditions. However, its performance may substantially degrade in the presence of market crashes, that is, if the asset returns … Read more

    Short Sales in Log-Robust Portfolio Management

  • Ban Kawas
  • Aurelie Thiele
    • Categories Finance and Economics, Robust Optimization Tags ,

    This paper extends the Log-robust portfolio management approach to the case with short sales, i.e., the case where the manager can sell shares he does not yet own. We model the continuously compounded rates of return, which have been established in the literature as the true drivers of uncertainty, as uncertain parameters belonging to polyhedral … Read more

    Comparison and robustification of Bayes and Black-Litterman models

  • Katrin Schoettle
  • Ralf Werner
  • Rudi Zagst
    • Categories Applications - OR and Management Sciences, Finance and Economics Tags

    For determining an optimal portfolio allocation, parameters representing the underlying market — characterized by expected asset returns and the covariance matrix — are needed. Traditionally, these point estimates for the parameters are obtained from historical data samples, but as experts often have strong opinions about (some of) these values, approaches to combine sample information and … Read more

    Value-at-Risk optimization using the difference of convex algorithm

  • David Wozabal
    • Categories Finance and Economics, Global Optimization Applications, Stochastic Programming Tags , ,

    Value-at-Risk (VaR) is an integral part of contemporary financial regulations. Therefore, the measurement of VaR and the design of VaR optimal portfolios are highly relevant problems for financial institutions. This paper treats a VaR constrained Markowitz style portfolio selection problem when the distribution of returns of the considered assets are given in the form of … Read more

    Computational study of a chance constrained portfolio selection problem

  • Shabbir Ahmed
  • Bernardo K. Pagnoncelli
  • Alexander Shapiro
    • Categories Stochastic Programming Tags , , ,

    We study approximations of chance constrained problems. In particular, we consider the Sample Average Approximation (SAA) approach and discuss convergence properties of the resulting problem. A method for constructing bounds for the optimal value of the considered problem is discussed and we suggest how one should tune the underlying parameters to obtain a good approximation … Read more

    A difference of convex formulation of value-at-risk constrained optimization

  • R. Hochreiter
  • Georg Ch. Pflug
  • David Wozabal
    • Categories Finance and Economics, Global Optimization, Stochastic Programming Tags , , ,

    In this article, we present a representation of value-at-risk (VaR) as a difference of convex (D.C.) functions in the case where the distribution of the underlying random variable is discrete and has finitely many atoms. The D.C. representation is used to study a financial risk-return portfolio selection problem with a VaR constraint. A branch-and-bound algorithm … Read more

    A Log-Robust Optimization Approach to Portfolio Management

  • Ban Kawas
  • Aurelie Thiele
    • Categories Finance and Economics, Robust Optimization Tags , ,

    In this paper we present a robust optimization approach to portfolio management under uncertainty that (i) builds upon the well-established Lognormal model for stock prices while addressing its limitations, and (ii) incorporates the imperfect knowledge on the true distribution of the continuously compounded rates of return, i.e., the increments of the logarithm of the stock … Read more