BOUNDED STRATEGIES FOR MAXIMIZING THE SHARPE RATIO

Jiang Ye (), Yiwei Wang and Muhammad Wajid Raza ()
Additional contact information
Jiang Ye: Department of Finance, School of Economics and Management, Southeast University, Nanjing 210096, P. R. China
Yiwei Wang: Department of Finance, School of Economics and Management, Southeast University, Nanjing 210096, P. R. China
Muhammad Wajid Raza: Department of Management Sciences, Shaheed Benazir Bhutto University, Sheringal 18050, Pakistan

International Journal of Theoretical and Applied Finance (IJTAF), 2023, vol. 26, issue 01, 1-15

Abstract: Bernard et al. [(2019) Optimal strategies under omega ratio, European Journal of Operational Research 275 (2), 755–767] use convex ordering arguments to determine the bounded payoff for maximizing the omega ratio. However, it appears difficult to apply such reasoning to estimate the bounded payoff for maximizing the Sharpe ratio. As a proposed solution, this paper uses a Lagrange multiplier method to derive the bounded payoff for maximizing the Sharpe ratio. In contrast to the optimal strategy in Bernard & Vanduffel [(2014) Mean–variance optimal portfolios in the presence of a benchmark with applications to fraud detection, European Journal of Operational Research 234 (2), 469–480], the optimal strategy in this paper is bounded from below. It can protect investors from substantial losses when they invest in payoffs with a maximized Sharpe ratio.

Keywords: Sharpe ratio; Lagrange multiplier method; Black–Scholes market (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219024923500024
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:ijtafx:v:26:y:2023:i:01:n:s0219024923500024

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219024923500024

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().