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Improving Skewness of Mean-Variance Portfolios

Author

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  • Luis Zuluaga
  • Samuel Cox

Abstract

The widely accepted belief that asset returns and insurance product line margins are not normally distributed has motivated the use of skewness (or higher than second-order moments) in the context of optimal risk-reward portfolio allocation. Here we propose an optimization-based methodology to substantially improve the skewness of portfolios in the mean-variance efficient frontier. Unlike other related methods, the proposed methodology is very intuitive, noniterative, and simple to implement, and it can be readily and efficiently carried out using state-of-the-art optimization solvers. These characteristics should be very appealing to risk managers.

Suggested Citation

  • Luis Zuluaga & Samuel Cox, 2010. "Improving Skewness of Mean-Variance Portfolios," North American Actuarial Journal, Taylor & Francis Journals, vol. 14(1), pages 59-67.
    • Handle: RePEc:taf:uaajxx:v:14:y:2010:i:1:p:59-67
    DOI: 10.1080/10920277.2010.10597577
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    Cited by:

    1. Flores-Ortega, Miguel. & Flores-Castillo, Lilia Alejandra. & Paredes-Gómez, Angelica., 2014. "Selección de portafolios de inversión incluyendo el efecto de asimetría: evidencia con activos de la Bolsa Mexicana de Valores," Panorama Económico, Escuela Superior de Economía, Instituto Politécnico Nacional, vol. 0(19), pages 77-101, segundo s.
    2. Valeria V. Lakshina, 2019. "Do Portfolio Investors Need To Consider The Asymmetry Of Returns On The Russian Stock Market?," HSE Working papers WP BRP 75/FE/2019, National Research University Higher School of Economics.
    3. Lakshina, Valeriya, 2020. "Do portfolio investors need to consider the asymmetry of returns on the Russian stock market?," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).
    4. repec:grm:ecoyun:201619 is not listed on IDEAS

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