A Downside Risk Analysis based on Financial Index Tracking Models

Lian Yu (), Shuzhong Zhang () and Xun Yu Zhou ()
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Lian Yu: University of California, Department of Industrial Engineering and Operations Research
Shuzhong Zhang: The Chinese University of Hong Kong Shatin, Department of Systems Engineering and Engineering Management
Xun Yu Zhou: The Chinese University of Hong Kong Shatin, Department of Systems Engineering and Engineering Management

Chapter 8 in Stochastic Finance, 2006, pp 213-236 from Springer

Abstract: Summary This paper is mainly concerned with a single-stage financial index tracking problem under the downside risk constraint where short-selling is allowed. First, we formulate the portfolio selection model with the downside probability constraint to track the financial index. Due to the convexity of this problem, the optimal portfolio is derived analytically by applying the Karush-Kuhn-Tucker optimality conditions. Moreover, we extend the risk measure to higher order moment of the downside and study the corresponding portfolio optimization problem.

Keywords: Risk Measure; Optimal Portfolio; Portfolio Selection; Risky Asset; Stochastic Dominance (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-0-387-28359-3_8

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DOI: 10.1007/0-387-28359-5_8

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