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Entropic Value-at-Risk portfolio optimization for tempered stable L\'evy processes

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  • Jaehyung Choi

Abstract

We develop parametric Entropic Value-at-Risk (EVaR) portfolio optimization for tempered stable L\'evy returns. We derive portfolio cumulant-generating functions and weight-dependent admissible moment-generating-function domains under two multivariate constructions: a multivariate normal tempered stable approach and an independent component factorization. These expressions allow portfolio EVaR to be evaluated from fitted asset- or component-level parameters without repeated portfolio-level distribution fitting. We construct minimum-EVaR portfolios and two entropic reward--risk portfolios. We test the portfolios in a rolling 2000 to 2026 out-of-sample U.S. sector ETF allocation. In this universe, several entropic portfolios have higher realized Sharpe ratios than their matched CVaR portfolios or standard allocation benchmarks.

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  • Jaehyung Choi, 2026. "Entropic Value-at-Risk portfolio optimization for tempered stable L\'evy processes," Papers 2608.18022, arXiv.org.
    • Handle: RePEc:arx:papers:2608.18022
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    References listed on IDEAS

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    1. Jaehyung Choi & Young Shin Kim & Ivan Mitov, 2014. "Reward-risk momentum strategies using classical tempered stable distribution," Papers 1403.6093, arXiv.org, revised Jun 2015.
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