Worst-Case Conditional Value-at-Risk with Application to Robust Portfolio Management

Shushang Zhu () and Masao Fukushima ()
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Shushang Zhu: Department of Management Science, School of Management, Fudan University, Shanghai 200433, China
Masao Fukushima: Department of Applied Mathematics and Physics, Graduate School of Informatics, Kyoto University, Kyoto 606-8501, Japan

Operations Research, 2009, vol. 57, issue 5, 1155-1168

Abstract: This paper considers the worst-case Conditional Value-at-Risk (CVaR) in the situation where only partial information on the underlying probability distribution is available. The minimization of the worst-case CVaR under mixture distribution uncertainty, box uncertainty, and ellipsoidal uncertainty are investigated. The application of the worst-case CVaR to robust portfolio optimization is proposed, and the corresponding problems are cast as linear programs and second-order cone programs that can be solved efficiently. Market data simulation and Monte Carlo simulation examples are presented to illustrate the proposed approach.

Keywords: conditional value-at-risk; portfolio management (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (169)

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