Application of a general risk management model to portfolio optimization problems with elliptical distributed returns for risk neutral and risk averse decision makers
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Kaynar, Bahar and Birbil, Ş. İlker and Frenk, J.B.G. (2007) Application of a general risk management model to portfolio optimization problems with elliptical distributed returns for risk neutral and risk averse decision makers. [Working Paper / Technical Report] Sabanci University ID:SU_FENS_2007/0012
In this paper portfolio problems with linear loss functions and multivariate elliptical distributed returns are studied. We consider two risk measures, Value-at-Risk and Conditional-Value-at-Risk, and two types of decision makers, risk neutral and risk averse. For Value-at-Risk, we show that the optimal solution does not change with the type of decision maker. However, this observation is not true for Conditional-Value-at-Risk. We then show for Conditional-Value-at-Risk that the objective function can be approximated by Monte Carlo simulation using only a univariate distribution. To solve the equivalent Markowitz model, we modify and implement a finite step algorithm. Finally, a numerical study is conducted.
|Item Type:||Working Paper / Technical Report|
|Uncontrolled Keywords:||Elliptical distributions; linear loss functions; value-at-risk; conditional value-at-risk; portfolio optimization; disutility|
|Subjects:||H Social Sciences > HB Economic Theory|
Q Science > QA Mathematics
|Deposited By:||İlker Şevket Birbil|
|Deposited On:||24 Oct 2007 01:04|
|Last Modified:||25 Oct 2007 12:26|
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