RT Generic
T1 Optimizing Measures of Risk: A Simplex-like Algorithm
A1 Balbás, Alejandro
A1 Balbás, Raquel
A1 Mayoral, Silvia
A2 Universidad de Navarra. Facultad de Ciencias Económicas y Empresariales, 
AB The minimization of general risk or dispersion measures is becoming more and more important in Portfolio Choice Theory. There are two major reasons. Firstly, the lack of symmetry in the returns of many assets provokes that the classical optimization of the standard deviation may lead to dominated strategies, from the point of view of the second order stochastic dominance. Secondly, but not less important, many institutional investors must respect legal capital requirements, which may be more easily studied if one deals with a risk measure related to capital losses. This paper proposes a new method to simultaneously minimize several risk or dispersion measures. The representation theorems of risk measures are applied to transform the general risk minimization problem in a minimax problem, and later in a linear programming problem between infinite-dimensional Banach spaces. Then, new necessary and sufficient optimality conditions are stated and a simplex-like algorithm is developed. The algorithm solves the dual (and therefore the primal) problem and provides both optimal portfolios and their sensitivities. The approach is general enough and does not depend on any particular risk measure, but some of the most important cases are specially analyzed.
YR 2006
FD 2006-09
LK https://hdl.handle.net/10016/6534
UL https://hdl.handle.net/10016/6534
LA eng
DS e-Archivo
RD 24 may. 2024