On the maximization of financial performance measures within mixture models

Rania Hentati () and Jean-Luc Prigent
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Rania Hentati: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: We introduce mixtures of probability distributions to model empirical distributions of financial asset returns. In this framework, we examine the problem of maximizing performance measures. For this purpose, we consider a large class of reward/risk ratios such as the Kappa measures and in particular the Omega ratio. This latter measure is associated to a downside risk measure based on a put component. All these measures can take account of the asymmetry of the probability distribution, which is important when dealing with mixture of distributions. We examine first a fundamental example: the ranking and maximization of Gaussian mixture distributions, according to the Omega performance measure. Then we provide a general result for the maximization of mixture distributions with respect to a very large family of performance measures, including Kappa measures.

Keywords: mixture of probability distributions; performance measures; Kappa measures; Omega ratio (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (3)

Published in Statistics and Decisions, 2011, 28 (1), pp.63-80. ⟨10.1524/stnd.2011.1083⟩

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Journal Article: On the maximization of financial performance measures within mixture models (2011)
Working Paper: On the maximization of financial performance measures within mixture models (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00608960

DOI: 10.1524/stnd.2011.1083

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