Dynamic tracking error with shortfall control using stochastic programming
AbstractIn this contribution we propose a dynamic tracking error problem and we consider the problem of monitoring at discrete point the shortfall of the portfolio below a set of given reference levels of wealth. We formulate and solve the resulting dynamic optimization problem using stochastic programming. The resulting problem allows for a great flexibility in the combination of a tracking goal and a downside risk protection through a discrete monitoring of the shortfalls. We provide the results of a out-of-sample simulation experiments, on real data, for different portfolio configurations and different market conditions.
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Bibliographic InfoPaper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2012_18.
Date of creation: 2012
Date of revision: 2012
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Web page: http://www.unive.it/dip.economia
More information through EDIRC
Dynamic portfolio optimization; Tracking error; Shortfall;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
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