Robust Portfolio Protection: A Scenarios-Based Approach

Selim Mankai () and Khaled Guesmi ()
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Selim Mankai: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique
Khaled Guesmi: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper constructs a robust optimization framework of the uncertain worst-case return. The model defines an adjustable discrete uncertainty set which controls the conservatism of the optimal asset allocation. Without prior assumptions on the data generating process, the model also develops an a priori probabilistic guarantee of the robust solution. Unlike previous measures that depend solely on the uncertainty model, the new measure is also sensitive to asset allocation and investment horizon. We provide an application of international stock indexes portfolio protection during the 2008 financial crisis. Computational experiments and ex-post analysis provide evidence for the effectiveness of our model.

Keywords: Portfolio protection; Robust optimization; Multivariate tail dependence; Nonparametric predictive inference. (search for similar items in EconPapers)
Date: 2014
Note: View the original document on HAL open archive server: https://hal.science/hal-04141326
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