Risk Management under Omega Measure

Michael R. Metel, Traian A. Pirvu and Julian Wong
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Michael R. Metel: Laboratoire de Recherche en Informatique, Université Paris-Sud, 91405 Orsay, France
Traian A. Pirvu: Department of Mathematics and Statistics, McMaster University, 1280 Main Street West, Hamilton, ON L8S 4K1, Canada
Julian Wong: Department of Mathematics and Statistics, McMaster University, 1280 Main Street West, Hamilton, ON L8S 4K1, Canada

Risks, 2017, vol. 5, issue 2, 1-14

Abstract: We prove that the Omega measure, which considers all moments when assessing portfolio performance, is equivalent to the widely used Sharpe ratio under jointly elliptic distributions of returns. Portfolio optimization of the Sharpe ratio is then explored, with an active-set algorithm presented for markets prohibiting short sales. When asymmetric returns are considered, we show that the Omega measure and Sharpe ratio lead to different optimal portfolios.

Keywords: risk management; portfolio optimization; Omega measure; Sharpe ratio; active-set algorithm; non-convex optimization (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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