Portfolio Optimization with Drawdown Constraints
نویسندگان
چکیده
We propose a new one-parameter family of risk functions defined on portfolio return sample -paths, which is called conditional drawdown-at-risk (CDaR). These risk functions depend on the portfolio drawdown (underwater) curve considered in active portfolio management. For some value of the tolerance parameter α , the CDaR is defined as the mean of the worst % 100 ) 1 ( ∗ − α drawdowns. The CDaR risk function contains the maximal drawdown and average drawdown as its limiting cases. For a particular example, we find optimal portfolios with constraints on the maximal drawdown, average drawdown and several intermediate cases between these two. The CDaR family of risk functions originates from the conditional value-at-risk (CVaR) measure. Some recommendations on how to select the optimal risk measure for getting practically stable portfolios are provided. We solved a real life portfolio allocation problem using the proposed risk functions.
منابع مشابه
Drawdown Minimization
One measure of riskiness of an investment is “drawdown”, defined, most often in the asset management space, as the decline in net asset value from a historic high point. Mathematically, if the net asset value is denoted by Vt , t ≥ 0, then the current “peak-to-trough” drawdown is given by Dt = Vt − max0≤u≤t Vu. The maximum drawdown, max0≤u≤t Du, is a statistic that the CFTC forces managed futur...
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