142 research outputs found
Risk minimization and portfolio diversification
We consider the problem of minimizing capital at risk in the Black-Scholes
setting. The portfolio problem is studied given the possibility that a
correlation constraint between the portfolio and a financial index is imposed.
The optimal portfolio is obtained in closed form. The effects of the
correlation constraint are explored; it turns out that this portfolio
constraint leads to a more diversified portfolio
Risk management under Omega measure
We prove that the Omega measure, which considers all moments when assessing
portfolio performance, is equivalent to the widely used Sharpe ratio under
jointly elliptic distributions of returns. Portfolio optimization of the Sharpe
ratio is then explored, with an active-set algorithm presented for markets
prohibiting short sales. When asymmetric returns are considered we show that
the Omega measure and Sharpe ratio lead to different optimal portfolios
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