The paper compares portfolio optimization with the Second-Order Stochastic Dominance (SSD) constraints with mean-variance and minimum variance portfolio optimization. As a distribution-free decision rule, stochastic dominance takes into account the entire distribution of return rather than some...

In accordance with Basel Capital Accords, the Capital Requirements (CR) for market risk exposure of banks is a nonlinear function of Value-at-Risk (VaR). Importantly, the CR is calculated based on a bank’s actual portfolio, i.e. the portfolio represented by its current holdings. To tackle...

In this paper, the generalized Pareto distribution (GPD) copula approach is utilized to solve the conditional value-at-risk (CVaR) portfolio problem. Particularly, this approach used (i) copula to model the complete linear and non-linear correlation dependence structure, (ii) Pareto tails to...