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Mean-Variance Portfolio Optimization Using Jackknife Empirical Likelihood Estimation Of Tail Conditional Variance

Rupel Nargunam () and Sudheesh K. K.
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Rupel Nargunam: (corresponding author) Madras School of Economics, Chennai, Tamil Nadu, India, 600025
Sudheesh K. K.: Statistical Science Unit, Indian Statistical Institute Chennai Centre, India

Working Papers from Madras School of Economics,Chennai,India

Abstract: This research introduces a nonparametric approach for estimating tail conditional variance (TCV) at the p-th quantile through the use of Jack-knife Empirical Likelihood (JEL). TCV functions as a second-moment indicator of tail risk, offering enhanced understanding of the variability of extreme losses, surpassing traditional scalar measures such as Condi-tional Value-at-Risk (CVaR). By utilizing jackknife pseudo-values within an empirical likelihood framework, we are able to develop robust confi-dence intervals for TCV without the necessity of specific distributional assumptions—an essential benefit when addressing financial returns char-acterized by heavy tails and skewness. The proposed methodology is ap-plied to mean-variance portfolio analysis, facilitating the construction of efficient frontiers that explicitly incorporate downside tail volatility. The findings indicate that the integration of JEL-based inference enhances both the interpretability and statistical robustness of portfolio risk evalu-ations, particularly in scenarios marked by model uncertainty and limited data in the tail.

Keywords: Tail Conditional Variance; Jackknife Empirical Likelihood; Confidence Interval; Mean Variance Portfolio Analysis (search for similar items in EconPapers)
JEL-codes: C13 C14 C15 G11 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2025-06
New Economics Papers: this item is included in nep-fmk and nep-rmg
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