Optimal asset allocation aid system: From "one-size" vs "tailor-made" performance ratio
Optimal asset allocation well-fitting investors' goals is a pressing challenge in risk management. Making a step forward to the Sharpe ratio, the parameter-dependent Sortino-Satchell, Generalized Rachev and Farinelli-Tibiletti performance ratios are suggested for personalizing asset allocation. Tailor-made optimal asset paths for five different investor risk profiles are traced over a rolling 12 month investing horizon. Our simulations show a satisfactorily good match between asset allocation and correspondent risk profile. Specifically, Generalized Rachev ratios outperform in personalized allocation for "extreme" risk profiles, i.e. conservative and aggressive investors, whereas Sortino-Satchell and Farinelli-Tibiletti ratios for those that are more moderate. Sharpe ratio confirms its ability in constructing steady-diversified portfolios, although underperformed.
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