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Portfolio Optimization with Expectile and Omega Functions

Alexander Wagner and Stan Uryasev

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Abstract: This paper proves equivalences of portfolio optimization problems with negative expectile and omega ratio. We derive subgradients for the negative expectile as a function of the portfolio from a known dual representation of expectile and general theory about subgradients of risk measures. We also give an elementary derivation of the gradient of negative expectile under some assumptions and provide an example where negative expectile is demonstrably not differentiable. We conducted a case study and solved portfolio optimization problems with negative expectile objective and constraint.

New Economics Papers: this item is included in nep-rmg
Date: 2019-10
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