On the maximization of financial performance measures within mixture models

Hentati Rania and Jean-Luc Prigent
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Hentati Rania: University of Paris I, CES, Paris, Frankreich

Statistics & Risk Modeling, 2011, vol. 28, issue 1, 63-80

Abstract: We introduce mixtures of probability distributions to model empirical distributions of financial asset returns. In this framework, we examine the problem of maximizing performance measures. For this purpose, we consider a large class of reward/risk ratios such as the Kappa measures and in particular the Omega ratio. This latter measure is associated to a downside risk measure based on a put component. All these measures can take account of the asymmetry of the probability distribution, which is important when dealing with mixture of distributions. We examine first a fundamental example: the ranking and maximization of Gaussian mixture distributions, according to the Omega performance measure. Then we provide a general result for the maximization of mixture distributions with respect to a very large family of performance measures, including Kappa measures.

Keywords: mixture of probability distributions; performance measures; Kappa measures; Omega ratio (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (9)

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Working Paper: On the maximization of financial performance measures within mixture models (2011)
Working Paper: On the maximization of financial performance measures within mixture models (2011)
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DOI: 10.1524/stnd.2011.1083

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