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

Author

Listed:
  • 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.

Suggested Citation

  • Giulio PALOMBA & Luca RICCETTI, 2013. "Asset Management with TEV and VaR;Constraints: the Constrained Efficient;Frontiers," Working Papers 392, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  • Handle: RePEc:anc:wpaper:392
    as

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    File URL: http://docs.dises.univpm.it/web/quaderni/pdf/392.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    4. 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.
    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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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