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Asset Management with TEV and VaR;Constraints: the Constrained Efficient;Frontiers

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  • Giulio PALOMBA

    ()
    (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali)

  • Luca RICCETTI

    ()
    (Universir… La Sapienza, Roma)

Abstract

It is well known that investors usually assign part of their funds to asset managers who are given the task of beating a benchmark portfolio. On the other hand, the risk management office could impose some restrictions to the asset managers' activity in order to mantain the overall portfolio risk under control. This situation could lead managers to select non efficient portfolios in the total return and absolute risk perspective. In this paper we focus on portfolio efficiency when a tracking error volatility (TEV) constraint holds. First, we define the TEV Constrained-Efficient Frontier (ECTF), a set of TEV constrained portfolios that are mean-variance efficient. Second, we discuss the effects on such boundary when a VaR and/or a variance restriction is also added.

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File URL: http://docs.dises.univpm.it/web/quaderni/pdf/392.pdf
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Bibliographic Info

Paper provided by Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali in its series Working Papers with number 392.

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Length: 29
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:anc:wpaper:392

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Keywords: asset allocation; efficient portfolio frontiers; tracking error volatility; value at risk;

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  1. Palomba, Giulio & Riccetti, Luca, 2012. "Portfolio frontiers with restrictions to tracking error volatility and value at risk," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2604-2615.
  2. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
  3. Alexander, Gordon J. & Baptista, Alexandre M., 2010. "Active portfolio management with benchmarking: A frontier based on alpha," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2185-2197, September.
  4. Alexander, Gordon J. & Baptista, Alexandre M., 2008. "Active portfolio management with benchmarking: Adding a value-at-risk constraint," Journal of Economic Dynamics and Control, Elsevier, vol. 32(3), pages 779-820, March.
  5. Gordon Alexander, 2009. "From Markowitz to modern risk management," The European Journal of Finance, Taylor & Francis Journals, vol. 15(5-6), pages 451-461.
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