Risk Measures and Portfolio Optimization

Priscilla Serwaa Nkyira Gambrah and Traian Adrian Pirvu
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Priscilla Serwaa Nkyira Gambrah: Department of Mathematics and Statistics, McMaster University, 1280 Main Street West, Hamilton, Ontario, L8S 4L8, Canada
Traian Adrian Pirvu: Department of Mathematics and Statistics, McMaster University, 1280 Main Street West, Hamilton, Ontario, L8S 4L8, Canada

JRFM, 2014, vol. 7, issue 3, 1-17

Abstract: In this paper we investigate portfolio optimization under Value at Risk, Average Value at Risk and Limited Expected Loss constraints in a continuous time framework, where stocks follow a geometric Brownian motion. Analytic expressions for Value at Risk, Average Value at Risk and Limited Expected Loss are derived. We solve the problem of minimizing risk measures applied to portfolios. Moreover, the portfolio’s expected return is maximized subject to the aforementioned risk measures. We illustrate the effect of these risk measures on portfolio optimization by using numerical experiments.

Keywords: risk management; value-at-risk; average value-at-risk; limited expected loss; geometric Brownian motion; optimal portfolio strategy (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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