TY - JOUR
T1 - Non-Gaussian optimization model for systematic portfolio allocation
T2 - How to take advantage of market turbulence?
AU - Ndiaye, Papa Momar
PY - 2011
Y1 - 2011
N2 - In this paper, we show how to build a systematic quantitative portfolio allocation strategy using non-Gaussian risk metrics and market turbulence detection. We propose a 3-step approach to build a reference second-order portfolio that will be optimally rebalanced according to increasing market skewness. The reference second-order portfolio uses a robust estimate of a covariance based on a semi-definite matrix calibration and incorporates risk aversion via a moving performance target depending on the volatility of the VIX index. As such, it is a dynamic strategy balancing robustness and reactivity to market volatility changes. A convex relaxation scheme allows to re-formulate the mixed second-order/third-order optimization problem as a tractable semi-definite program.
AB - In this paper, we show how to build a systematic quantitative portfolio allocation strategy using non-Gaussian risk metrics and market turbulence detection. We propose a 3-step approach to build a reference second-order portfolio that will be optimally rebalanced according to increasing market skewness. The reference second-order portfolio uses a robust estimate of a covariance based on a semi-definite matrix calibration and incorporates risk aversion via a moving performance target depending on the volatility of the VIX index. As such, it is a dynamic strategy balancing robustness and reactivity to market volatility changes. A convex relaxation scheme allows to re-formulate the mixed second-order/third-order optimization problem as a tractable semi-definite program.
KW - Markowitz optimization
KW - convex relaxation
KW - positive asymmetry
KW - semi-definite least square
UR - http://www.scopus.com/inward/record.url?scp=80055074313&partnerID=8YFLogxK
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U2 - 10.3233/RDA-2011-0048
DO - 10.3233/RDA-2011-0048
M3 - Article
AN - SCOPUS:80055074313
SN - 1569-7371
VL - 2
SP - 237
EP - 244
JO - Risk and Decision Analysis
JF - Risk and Decision Analysis
IS - 4
ER -