INSTABILITY OF PORTFOLIO OPTIMIZATION UNDER COHERENT RISK MEASURES

Imre Kondor () and István Varga-Haszonits ()
Additional contact information
Imre Kondor: Collegium Budapest — Institute for Advanced Study, Szentháromság u. 2, H-1014 Budapest, Hungary;
István Varga-Haszonits: Department of Physics of Complex Systems, Eötvös University, Pázmány Péter Sétány 1/A, H-1117 Budapest, Hungary;

Advances in Complex Systems (ACS), 2010, vol. 13, issue 03, 425-437

Abstract: It is shown that the axioms for coherent risk measures imply that whenever there is a pair of portfolios such that one of them dominates the other in a given sample (which happens with finite probability even for large samples), then there is no optimal portfolio under any coherent measure on that sample, and the risk measure diverges to minus infinity. This instability was first discovered in the special example of Expected Shortfall which is used here both as an illustration and as a springboard for generalization.

Keywords: Coherent risk measures; portfolio optimization; expected shortfall; financial risk; estimation; 89.65.Gh; 89.75.-k; 02.60.Nm; G11; C13; D81 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219525910002591
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:acsxxx:v:13:y:2010:i:03:n:s0219525910002591

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219525910002591

Access Statistics for this article

Advances in Complex Systems (ACS) is currently edited by Frank Schweitzer

More articles in Advances in Complex Systems (ACS) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().