Optimal asset allocation aid system: From "one-size" vs "tailor-made" performance ratio

Simone Farinelli, Manuel Ferreira, Damiano Rossello, Markus Thoeny and Luisa Tibiletti ()

European Journal of Operational Research, 2009, vol. 192, issue 1, 209-215

Abstract: Optimal asset allocation well-fitting investors' goals is a pressing challenge in risk management. Making a step forward to the Sharpe ratio, the parameter-dependent Sortino-Satchell, Generalized Rachev and Farinelli-Tibiletti performance ratios are suggested for personalizing asset allocation. Tailor-made optimal asset paths for five different investor risk profiles are traced over a rolling 12 month investing horizon. Our simulations show a satisfactorily good match between asset allocation and correspondent risk profile. Specifically, Generalized Rachev ratios outperform in personalized allocation for "extreme" risk profiles, i.e. conservative and aggressive investors, whereas Sortino-Satchell and Farinelli-Tibiletti ratios for those that are more moderate. Sharpe ratio confirms its ability in constructing steady-diversified portfolios, although underperformed.

Keywords: Risk; management; Decision; support; system; Asset; allocation (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:192:y:2009:i:1:p:209-215

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