Please use this identifier to cite or link to this item: http://buratest.brunel.ac.uk/handle/2438/13899
Title: Novel approaches for portfolio construction using second order stochastic dominance
Authors: Roman, D
Arbex Valle, C
Mitra, G
Keywords: Portfolio optimisation;Stochastic dominance;Reference distribution;Left tail;Downside risk
Issue Date: 2017
Publisher: Springer Verlag
Citation: Computational Management Science, (2017)
Abstract: In the last decade, a few models of portfolio construction have been proposed which apply Second Order Stochastic Dominance (SSD) as a choice criterion. SSD approach requires the use of a reference distribution which acts as a benchmark. The return distribution of the computed portfolio dominates the benchmark by the SSD criterion. The benchmark distribution naturally plays an important role since di erent benchmarks lead to very di erent portfolio solutions. In this paper we describe a novel concept of reshaping the benchmark distribution with a view to obtaining portfolio solutions which have enhanced return distributions. The return distribution of the constructed portfolio is considered enhanced if the left tail is improved, the downside risk is reduced and the standard deviation remains within a speci ed range. We extend this approach from long only to long-short strategies which are used by many hedge fund and quant fund practitioners. We present computational results which illustrate (i) how this approach leads to superior portfolio performance (ii) how signi cantly better performance is achieved for portfolios that include shorting of assets.
URI: http://bura.brunel.ac.uk/handle/2438/13899
DOI: http://dx.doi.org/10.1007/s10287-017-0274-9
ISSN: 1619-697X
Appears in Collections:Dept of Mathematics Research Papers

Files in This Item:
File Description SizeFormat 
Fulltext.pdf1.6 MBAdobe PDFView/Open


Items in BURA are protected by copyright, with all rights reserved, unless otherwise indicated.