On the use of conditional expectation in portfolio selection problems
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F19%3A10240127" target="_blank" >RIV/61989100:27510/19:10240127 - isvavai.cz</a>
Result on the web
<a href="https://link.springer.com/article/10.1007%2Fs10479-018-2890-3" target="_blank" >https://link.springer.com/article/10.1007%2Fs10479-018-2890-3</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1007/s10479-018-2890-3" target="_blank" >10.1007/s10479-018-2890-3</a>
Alternative languages
Result language
angličtina
Original language name
On the use of conditional expectation in portfolio selection problems
Original language description
In this paper, we examine the use of conditional expectation, either to reduce the dimensionality of large-scale portfolio problems or to propose alternative reward-risk performance measures. In particular, we focus on two financial problems. In the first part, we discuss and examine correlation measures (based on a conditional expectation) used to approximate the returns in large-scale portfolio problems. Then, we compare the impact of alternative return approximation methodologies on the ex-post wealth of a classic portfolio strategy. In this context, we show that correlation measures that use the conditional expectation perform better than the classic measures do. Moreover, the correlation measure typically used for returns in the domain of attraction of a stable law works better than the classic Pearson correlation does. In the second part, we propose new performance measures based on a conditional expectation that take into account the heavy tails of the return distributions. Then, we examine portfolio strategies based on optimizing the proposed performance measures. In particular, we compare the ex-post wealth obtained from applying the portfolio strategies, which use alternative performance measures based on a conditional expectation. In doing so, we propose an alternative use of conditional expectation in various portfolio problems. (C) 2018 Springer Science+Business Media, LLC, part of Springer Nature
Czech name
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Czech description
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Classification
Type
J<sub>imp</sub> - Article in a specialist periodical, which is included in the Web of Science database
CEP classification
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OECD FORD branch
50206 - Finance
Result continuities
Project
<a href="/en/project/GA17-19981S" target="_blank" >GA17-19981S: Financial applications of stochastic ordering rules</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)
Others
Publication year
2019
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Name of the periodical
Annals of Operations Research
ISSN
0254-5330
e-ISSN
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Volume of the periodical
274
Issue of the periodical within the volume
1-2
Country of publishing house
US - UNITED STATES
Number of pages
30
Pages from-to
501-530
UT code for WoS article
000458483900023
EID of the result in the Scopus database
2-s2.0-85047158309