Worst-case conditional value-at-risk with application to robust portfolio management

Worst-case conditional value-at-risk with application to robust portfolio management

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Article ID: iaor200971635
Country: United States
Volume: 57
Issue: 5
Start Page Number: 1155
End Page Number: 1168
Publication Date: Sep 2009
Journal: Operations Research
Authors: ,
Keywords: risk
Abstract:

This paper considers the worst-case Conditional Value-at-Risk (CVaR) in the situation where only partial information on the underlying probability distribution is available. The minimization of the worst-case CVaR under mixture distribution uncertainty, box uncertainty, and ellipsoidal uncertainty are investigated. The application of the worst-case CVaR to robust portfolio optimization is proposed, and the corresponding problems are cast as linear programs and second-order cone programs that can be solved efficiently. Market data simulation and Monte Carlo simulation examples are presented to illustrate the proposed approach.

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