TY - JOUR
T1 - Capital Asset Pricing Model (CAPM) with drawdown measure
AU - Zabarankin, Michael
AU - Pavlikov, Konstantin
AU - Uryasev, Stan
PY - 2014/4/16
Y1 - 2014/4/16
N2 - The notion of drawdown is central to active portfolio management. Conditional Drawdown-at-Risk (CDaR) is defined as the average of a specified percentage of the largest drawdowns over an investment horizon and includes maximum and average drawdowns as particular cases. The necessary optimality conditions for a portfolio optimization problem with CDaR yield the capital asset pricing model (CAPM) stated in both single and multiple sample-path settings. The drawdown beta in the CAPM has a simple interpretation and is evaluated for hedge fund indices from the HFRX database in the single sample-path setting. Drawdown alpha is introduced similarly to the alpha in the classical CAPM and is evaluated for the same hedge fund indices. Both drawdown beta and drawdown alpha are used to prioritize hedge fund strategies and to identify instruments for hedging against market drawdowns.
AB - The notion of drawdown is central to active portfolio management. Conditional Drawdown-at-Risk (CDaR) is defined as the average of a specified percentage of the largest drawdowns over an investment horizon and includes maximum and average drawdowns as particular cases. The necessary optimality conditions for a portfolio optimization problem with CDaR yield the capital asset pricing model (CAPM) stated in both single and multiple sample-path settings. The drawdown beta in the CAPM has a simple interpretation and is evaluated for hedge fund indices from the HFRX database in the single sample-path setting. Drawdown alpha is introduced similarly to the alpha in the classical CAPM and is evaluated for the same hedge fund indices. Both drawdown beta and drawdown alpha are used to prioritize hedge fund strategies and to identify instruments for hedging against market drawdowns.
KW - Asset beta
KW - Capital asset pricing model (CAPM)
KW - Conditional drawdown-at-risk (CDaR)
KW - Drawdown
KW - Portfolio theory
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U2 - 10.1016/j.ejor.2013.03.024
DO - 10.1016/j.ejor.2013.03.024
M3 - Article
AN - SCOPUS:84890859150
SN - 0377-2217
VL - 234
SP - 508
EP - 517
JO - European Journal of Operational Research
JF - European Journal of Operational Research
IS - 2
ER -