In typical robust portfolio selection problems, one mainly finds portfolios with the worst-case return under a given uncertainty set, in which asset returns can be realized. A too large uncertainty set will lead to a too conservative robust portfolio. However, if the given uncertainty set is not...

While it is often argued that allocation decisions can be best expressed in terms of exposure to rewarded risk factors, as opposed to somewhat arbitrary asset class decompositions, the practical implications of this paradigm shift for the optimal design of the policy portfolio still remain...

Today's asset management academia and practice is dominated by mean-variance thinking. In consequence, this leads to the quantification of the dependence structure of asset returns by the covariance or the Pearson's correlation coefficient matrix. However, the respective dependence measures are...

In this paper, we propose a method for hedge fund replication using a factor-based model supplemented with a series of risk and return constraints that implicitly target all the moments of the hedge fund return distribution. We use the approach to replicate the monthly returns of ten broad hedge...

Using sectorial indices of the Brazilian market, we compare the portfolio optimization approach known as risk parity with minimum variance and equally weighted approaches. We apply various estimators for the covariance matrix to each portfolio strategy, since portfolio variance is considered as...

We consider a portfolio optimization problem of the Black-Litterman type, in which we use the conditional value-at-risk (CVaR) as the risk measure and we use the multi-variate elliptical distributions, instead of the multi-variate normal distribution, to model the financial asset returns. We...

Optimization of international securitized real estate portfolios has been a key topic for several decades. However, most previous analysis has focused on regional diversification by applying the traditional mean-variance (MV) framework suggested by Markowitz (1952) even if the limitations of...

Interconnectedness is an alternative risk concept that so far has earned little attention in the asset management academia and industry. In this paper, we show that this neglect is not justified, as interconnectedness risk (i) has only moderate or no connection to conventional portfolio...

We study a notion of good-deal hedging, that corresponds to good-deal valuation and is described by a uniform supermartingale property for the tracking errors of hedging strategies. For generalized good-deal constraints, defined in terms of correspondences for the Girsanov kernels of pricing...

Measures of model risk based on the residual error from hedging in a misspecified model were recently proposed in (Detering and Packham, 2013). These measures rely on the assumption that the model used for hedging represents a complete financial market. We show that under certain conditions, in...