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Robust portfolio optimization for banking foundations: a CVaR approach for asset allocation with mandatory constraints

Author

Listed:
  • Maria Cristina Arcuri

    (University of Parma
    SDA Bocconi School of Management)

  • Gino Gandolfi

    (University of Parma
    SDA Bocconi School of Management)

  • Fabrizio Laurini

    (University of Parma)

Abstract

This paper focuses on an innovative asset allocation strategy for risk averse investors who operate on very long-time horizons, such as endowments and the Italian foundations of banking origin (FBOs). FBOs play a pivotal role in supporting economic, financial and sustainable growth in the long term. In the search for a model which optimizes FBO portfolio choices in the light of regulatory constraints on their sizeable investable portfolio, we highlight the risk-adjusted performances obtained using a robust conditional VaR (R-CVaR) approach—assuming different risk profiles—which corrects some of the Markowitz approach pitfalls and accounts for tail risk. We compare the two models using a buy and hold strategy: the R-CVaR delivers better returns than a Markowitz portfolio, even when those performances are measured with a mean–variance metric.

Suggested Citation

  • Maria Cristina Arcuri & Gino Gandolfi & Fabrizio Laurini, 2023. "Robust portfolio optimization for banking foundations: a CVaR approach for asset allocation with mandatory constraints," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 31(2), pages 557-581, June.
    • Handle: RePEc:spr:cejnor:v:31:y:2023:i:2:d:10.1007_s10100-022-00821-5
    DOI: 10.1007/s10100-022-00821-5
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