portfolio optimization with drawdown constraints l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Portfolio Optimization with Drawdown Constraints PowerPoint Presentation
Download Presentation
Portfolio Optimization with Drawdown Constraints

Loading in 2 Seconds...

play fullscreen
1 / 17

Portfolio Optimization with Drawdown Constraints - PowerPoint PPT Presentation


  • 291 Views
  • Uploaded on

Portfolio Optimization with Drawdown Constraints. January 29, 2000. Alexei Chekhlov, TrendLogic Associates, Inc. Stanislav Uryasev & Mikhail Zabarankin, University of Florida, ISE. Introduction. Losing client’s accounts is equivalent to death of business;

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Portfolio Optimization with Drawdown Constraints' - Antony


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
portfolio optimization with drawdown constraints

Portfolio Optimization with Drawdown Constraints

January 29, 2000

Alexei Chekhlov, TrendLogic Associates, Inc.

Stanislav Uryasev & Mikhail Zabarankin, University of Florida, ISE

introduction
Introduction
  • Losing client’s accounts is equivalent to death of business;
  • Highly unlikely to hold an account which was in a drawdown for 2 years;
  • Highly unlikely to be permitted to have a 50% drawdown;
  • Shutdown condition: 20% drawdown;
  • Warning condition: 15% drawdown;
  • Longest time to get out of a drawdown - 1 year.
slide3

- uncompounded portfolio value at time t;

- set of unknown weights;

- drawdown function.

  • Three Measures of Risk:
  • Maximum drawdown (MaxDD):
  • Average drawdown (AvDD):
  • Conditional drawdown-at-risk (CDaR):
limiting the risk
Limiting the risk:
  • MaxDD:
  • AvDD:
  • DVaR:
  • Combination:
continuous optimization problems
Continuous Optimization Problems:

MaxDD:

AvDD:

CDaR:

“technological” constraints:

discrete optimization problems
Discrete Optimization Problems:

MaxDD:

AvDD:

CDaR:

, (g)+=max{0,g}.

slide13

Figure 1: MaxDD Efficient Frontier

Figure 2: AvDD Efficient Frontier

slide14

Figure 3: Efficient Frontier as a function of MaxDD

Figure 4: Efficient Frontier as a function of AvDD

slide15

Figure 5: MaxDDRatio as a function of MaxDD

Figure 6: AvDDRatio as a function of AvDD

conclusions
Conclusions
  • Introduced a one-parameter family of risk measures based on a notion of a drawdown (underwater) curve;
  • Mapped Portfolio Allocation problem into linear programming problems to be solved using efficient computer solvers;
  • Solved a particular real-life example on the basis of historical equity curves;
  • CDaR-generated solutions are more stable for practical weights’ allocation.