Robust portfolio optimization for banking foundations: a CVaR approach for asset allocation with mandatory constraints

Maria Cristina Arcuri (), Gino Gandolfi () and Fabrizio Laurini ()
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Maria Cristina Arcuri: University of Parma
Gino Gandolfi: University of Parma
Fabrizio Laurini: University of Parma

Central European Journal of Operations Research, 2023, vol. 31, issue 2, No 8, 557-581

Abstract: Abstract This paper focuses on an innovative asset allocation strategy for risk averse investors who operate on very long-time horizons, such as endowments and the Italian foundations of banking origin (FBOs). FBOs play a pivotal role in supporting economic, financial and sustainable growth in the long term. In the search for a model which optimizes FBO portfolio choices in the light of regulatory constraints on their sizeable investable portfolio, we highlight the risk-adjusted performances obtained using a robust conditional VaR (R-CVaR) approach—assuming different risk profiles—which corrects some of the Markowitz approach pitfalls and accounts for tail risk. We compare the two models using a buy and hold strategy: the R-CVaR delivers better returns than a Markowitz portfolio, even when those performances are measured with a mean–variance metric.

Keywords: Foundations of banking origin; Robust C-VaR; Robust portfolio optimization; C44; C61; G11; G23 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10100-022-00821-5

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