Long–short portfolio optimization in the presence of discrete asset choice constraints and two risk measures

This paper considers long-short portfolio optimization in the presence of two risk measures (variance and conditional value-at-risk (CVaR)), and asset choice constraints regarding buying and selling and holding thresholds, and cardinality restrictions on the number of stocks to be held in the portfo...

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Veröffentlicht in:The journal of risk Jg. 13; H. 2; S. 71 - 100
Hauptverfasser: Kumar, Ritesh, Mitra, Gautam, Roman, Diana
Format: Journal Article
Sprache:Englisch
Veröffentlicht: London Incisive Media Plc 01.12.2010
Incisive Media Limited
Schlagworte:
Investment policy
Investments
Linear programming
Optimization
Performance evaluation
Portfolio investments
Portfolio-Management
Risikomaß
Risk assessment
Securities markets
Short sales
Stock exchanges
Studies
ISSN:1465-1211, 1755-2842
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Zusammenfassung:This paper considers long-short portfolio optimization in the presence of two risk measures (variance and conditional value-at-risk (CVaR)), and asset choice constraints regarding buying and selling and holding thresholds, and cardinality restrictions on the number of stocks to be held in the portfolio. The mean-variance-CVaR model is based on the mean-variance approach but has an additional constraint on CVaR. Our empirical investigations show that short-selling strategies lead to a superior choice of portfolios, with higher expected return and much lower risk exposures. In particular, the downside risk can be considerably reduced by introducing short selling. Our long-short extension to the mean-variance-CVaR model incorporates the practice of many financial institutions with regard to "short" decisions. Numerical experiments with the resulting model, which is a quadratic mixed integer program, are conducted on real data drawn from the FTSE 100 index. [PUBLICATION ABSTRACT]
Bibliographie:SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 14
ISSN:1465-1211
1755-2842
DOI:10.21314/JOR.2010.221