IDEAS home Printed from https://ideas.repec.org/a/taf/eurjfi/v28y2022i16p1642-1663.html
   My bibliography  Save this article

Downside risk optimization with random targets and portfolio amplitude

Author

Listed:
  • Zinoviy Landsman
  • Udi Makov
  • Jing Yao
  • Ming Zhou

Abstract

In this paper, we discuss downside risk optimization in the context of portfolio selection. We derive explicit solutions to the optimal portfolios that minimize the downside risk with respect to constant targets and random targets. In doing so, we propose using portfolio amplitude, a new measure in the literature, to characterize the portfolio selection under the downside risk optimization. Particularly, we demonstrate a mechanism by which the random target inputs its impact into the system and alters the optimal solution. Our results underpin why investors prefer holding some specific assets in following random targets and provide explanations for some special investment strategies, such as constructing a stock portfolio following a bond index. We present numerical examples of stock portfolio management to support our theoretical results.

Suggested Citation

  • Zinoviy Landsman & Udi Makov & Jing Yao & Ming Zhou, 2022. "Downside risk optimization with random targets and portfolio amplitude," The European Journal of Finance, Taylor & Francis Journals, vol. 28(16), pages 1642-1663, November.
    • Handle: RePEc:taf:eurjfi:v:28:y:2022:i:16:p:1642-1663
    DOI: 10.1080/1351847X.2021.1991421
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1351847X.2021.1991421
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1351847X.2021.1991421?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:28:y:2022:i:16:p:1642-1663. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REJF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.