1
vote
1answer
65 views

Which is the better risk sensitive measure?

Consider the two following optimization problem 1) $$ \min_{\theta} \ln E_{\theta}[ e^{X}]$$ 2) $$ \min_{\theta} E_{\theta}[ X]$$ with the constraint $$ Var_{\theta}[X] <c$$ Is it true that ...
1
vote
0answers
31 views

Doubt on risk cost criterion

I want to minimize some kind of risk sensitive cost. But, I am confused what cost criterion should I use. I am aware of only expected exponential utility. I want to know what are the other such ...
3
votes
1answer
127 views

Optimal Choice of exceeding time

Suppose you hold a share from company $Z$ whose vaue at time $t$ is $S_0+\sigma B_t$ where $B_t$ is Brownian Motion and $\sigma$ denotes some volatility. Now lets assume that company $Z$ may go ...
8
votes
5answers
2k views

Why is the Drawdown measure not used for portfolio optimization?

I was asked yesterday by a colleague why we are doing asset allocation using optimizers which target, for a minimum expected return: the portfolio with the minimum variance or the portfolio with ...
6
votes
1answer
1k views

How can I use Entropy-pooling of Atillio Meucci to constuct a portfolio?

I am trying to get my hands on Entropy Pooling which was introduced by Meucci in this paper. As an example, assume I want to construct a portfolio with five stocks and I have my view on CVaR. How ...
7
votes
2answers
1k views

How to apply risk-parity portfolio construction to a dollar-neutral portfolio?

Long-only risk-parity portfolios have proliferated in recent years. An optimized long-only risk-parity portfolio requires that the asset weight * marginal contribution to risk of the asset is ...
4
votes
2answers
405 views

Choice of prior as a shrinkage target in portfolio construction?

There's various research showing how priors such as the minimum variance portfolio turn out to be a surprisingly effective shrinkage target in portfolio construction. The sell point of these priors ...
15
votes
1answer
965 views

Portfolio optimization with monte carlo sampling from predictive distribution

Let's say we have a predictive distribution of expected returns for N assets. The distribution is not normal. We can interpret the dispersion in the distribution as reflection of our uncertainty (or ...