Optimal strategies under worst-case scenarios have been studied in Bernard et al.[2013a]. Bernard et al. utilize copulas to construct cost-efficient strategies with a predefineddependence structure in the tail between the payoff and the market. In their studythey show that such strategies with state-dependent copula constraints dominate traditionaldiversification strategies in terms of the provided protection in the states of marketdownturns. We derive similar strategies, however using correlation constraints instead ofcopula constraints in the tail. We found that for an investor seeking negative dependencewith the market, it is cheaper to construct a strategy with conditional correlation constraintin the tail. However, the constructed strategies with conditional correlation constraints donot provide sufficient protection in bad states of the economy. Therefore, when analyzinga strategy, negative correlation with the market in the tail is not a sufficient indicator forthe protection level in the event of a market crisis.
【 预 览 】
附件列表
Files
Size
Format
View
Optimal Strategies with Tail Correlation Constraints
PDF
download
878987797
028-85220240
