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Dynamic versus static optimization of hedge fund portfolios: The relevance of performance measures

Author

Listed:
  • Rania Hentati

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Ameur Kaffel
  • Jean-Luc Prigent

    (THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper analyzes the relevance of a set of some performance measures for optimal portfolios including hedge funds. Four criteria are considered: the Sharpe Ratio, the Returns on VaR and on CVaR, and the Omega performance measure. The results are illustrated by an allocation on several indices: HFR (Global Hedge Fund Index), JPM Goverment Bond Index, S&P GSCI, MSCI World and the UBS Global Convertible. Both static and dynamic optimizations are considered. Due to the non-convexity of some of the criteria, we use the "threshold accepting algorithm" to solve numerically the optimization problems. The time period of the analysis is September 1997 to August 2007. Our results suggest that, for the dynamic optimization, the portfolio which maximizes the Omega measure has the more stable performances, in particular when compared to the Return-on-CVaR portfolio. As a by-product, we prove that all the optimal portfolios had to contain hedge funds for the time period 1997-2007.

Suggested Citation

  • Rania Hentati & Ameur Kaffel & Jean-Luc Prigent, 2010. "Dynamic versus static optimization of hedge fund portfolios: The relevance of performance measures," Post-Print hal-00608962, HAL.
    • Handle: RePEc:hal:journl:hal-00608962
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    Cited by:

    1. Caporin, Massimiliano & Costola, Michele & Jannin, Gregory & Maillet, Bertrand, 2018. "“On the (Ab)use of Omega?”," Journal of Empirical Finance, Elsevier, vol. 46(C), pages 11-33.
    2. Rania HENTATI & Jean-Luc PRIGENT, 2010. "Structured Portfolio Analysis under SharpeOmega Ratio," EcoMod2010 259600073, EcoMod.
    3. Carole Bernard & Massimiliano Caporin & Bertrand Maillet & Xiang Zhang, 2023. "Omega Compatibility: A Meta-analysis," Computational Economics, Springer;Society for Computational Economics, vol. 62(2), pages 493-526, August.
    4. Hentati-Kaffel, Rania, 2016. "Structured products under generalized kappa ratio," Economic Modelling, Elsevier, vol. 58(C), pages 599-614.
    5. Harris, Richard D.F. & Mazibas, Murat, 2013. "Dynamic hedge fund portfolio construction: A semi-parametric approach," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 139-149.

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