Optimal Dynamic Portfolio with Mean-CVaR Criterion

Risks

Jing Li¹ 

[1] Federal Reserve Bank of New York, New York, NY 10045, USA; E-Mail:

关键词: conditional value-at-risk;    mean-CVaR portfolio optimization;    risk minimization;    Neyman–Pearson problem;   

DOI  :  10.3390/risks1030119

来源: mdpi

【 摘 要 】

Value-at-risk (VaR) and conditional value-at-risk (CVaR) are popular risk measures from academic, industrial and regulatory perspectives. The problem of minimizing CVaR is theoretically known to be of a Neyman–Pearson type binary solution. We add a constraint on expected return to investigate the mean-CVaR portfolio selection problem in a dynamic setting: the investor is faced with a Markowitz type of risk reward problem at the final horizon, where variance as a measure of risk is replaced by CVaR. Based on the complete market assumption, we give an analytical solution in general. The novelty of our solution is that it is no longer the Neyman–Pearson type, in which the final optimal portfolio takes only two values. Instead, in the case in which the portfolio value is required to be bounded from above, the optimal solution takes three values; while in the case in which there is no upper bound, the optimal investment portfolio does not exist, though a three-level portfolio still provides a sub-optimal solution.

【 授权许可】

CC BY   
© 2013 by the authors; licensee MDPI, Basel, Switzerland.