Robust optimization of conditional value at risk and portfolio selection
AbstractThis paper deals with a portfolio selection model in which the methodologies of robust optimization are used for the minimization of the conditional value at risk of a portfolio of shares. Conditional value at risk, being in essence the mean shortfall at a specified confidence level, is a coherent risk measure which can hold account of the so called "tail risk" and is therefore an efficient and synthetic risk measure, which can overcome the drawbacks of the most famous and largely used VaR. An important feature of our approach consists in the use of techniques of robust optimization to deal with uncertainty, in place of stochastic programming as proposed by Rockafellar and Uryasev. Moreover we succeeded in obtaining a linear robust copy of the bi-criteria minimization model proposed by Rockafellar and Uryasev. We suggest different approaches for the generation of input data, with special attention to the estimation of expected returns. The relevance of our methodology is illustrated by a portfolio selection experiment on the Italian market.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 32 (2008)
Issue (Month): 10 (October)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jbf
Coherent risk measures Conditional value at risk Robust optimization;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carlo Acerbi & Dirk Tasche, 2001. "Expected Shortfall: a natural coherent alternative to Value at Risk," Papers cond-mat/0105191, arXiv.org.
- Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
- Rockafellar, R. Tyrrell & Uryasev, Stanislav, 2002. "Conditional value-at-risk for general loss distributions," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1443-1471, July.
- Matthew Pritsker, 2001. "The hidden dangers of historical simulation," Finance and Economics Discussion Series 2001-27, Board of Governors of the Federal Reserve System (U.S.).
- Ferstl, Robert & Weissensteiner, Alex, 2009.
"Asset-Liability Management under time-varying Investment Opportunities,"
15068, University Library of Munich, Germany.
- Ferstl, Robert & Weissensteiner, Alex, 2011. "Asset-liability management under time-varying investment opportunities," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 182-192, January.
- Jing Li & Mingxin Xu, 2013.
"Optimal Dynamic Portfolio with Mean-CVaR Criterion,"
MDPI, Open Access Journal, vol. 1(3), pages 119-147, November.
- Jing Li & Mingxin Xu, 2013. "Optimal Dynamic Portfolio with Mean-CVaR Criterion," Papers 1308.2324, arXiv.org.
- Selim Mankaï, 2014. "Data-Driven Robust Optimization with Application to Portfolio Management," Working Papers 2014-104, Department of Research, Ipag Business School.
- Selim Mankaï & Khaled Guesmi, 2014.
"Robust Portfolio Protection: A Scenarios-Based Approach,"
EconomiX Working Papers
2014-35, University of Paris West - Nanterre la Défense, EconomiX.
- Selim Mankaï & Khaled Guesmi, 2014. "Robust Portfolio Protection: A Scenarios-Based Approach," Working Papers 2014-394, Department of Research, Ipag Business School.
- Ghahtarani, Alireza & Najafi, Amir Abbas, 2013. "Robust goal programming for multi-objective portfolio selection problem," Economic Modelling, Elsevier, vol. 33(C), pages 588-592.
- Pflug, Georg Ch. & Pichler, Alois & Wozabal, David, 2012. "The 1/N investment strategy is optimal under high model ambiguity," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 410-417.
- Chen, Zhiping & Wang, Yi, 2008. "Two-sided coherent risk measures and their application in realistic portfolio optimization," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2667-2673, December.
- Balbás, Alejandro & Balbás, Beatriz & Balbás, Raquel, 2010. "CAPM and APT-like models with risk measures," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1166-1174, June.
- You, Leyuan & Daigler, Robert T., 2010. "Is international diversification really beneficial?," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 163-173, January.
- Boubaker, Heni & Sghaier, Nadia, 2013. "Portfolio optimization in the presence of dependent financial returns with long memory: A copula based approach," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 361-377.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.