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Determining an optimal multiplier in dynamic core-satellite strategies

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Listed:
  • Thibaut Caliman
  • Catherine D'Hondt
  • Mikael Petitjean

    (Louvain School of Management, Université catholique de Louvain)

Abstract

This article investigates the performance of various multiplier techniques in reducing downside risk for dynamic core-satellite portfolios. Using Monte Carlo simulations calibrated on monthly data for three different portfolios over a 10-year period, we show that the dynamic IR/TE multiplier offers the best level of capital protection, as the specified floor is violated in less than 1 per cent of the cases. Even though other multipliers might offer higher average excess returns, the IR/TE multiplier still captures a significant fraction of the satellite excess return. In addition, it delivers an almost constant average floor violation rate.

Suggested Citation

  • Thibaut Caliman & Catherine D'Hondt & Mikael Petitjean, 2013. "Determining an optimal multiplier in dynamic core-satellite strategies," Journal of Asset Management, Palgrave Macmillan, vol. 14(4), pages 210-227, August.
    • Handle: RePEc:pal:assmgt:v:14:y:2013:i:4:d:10.1057_jam.2013.16
    DOI: 10.1057/jam.2013.16
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    References listed on IDEAS

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    1. Craig Israelsen, 2005. "A refinement to the Sharpe ratio and information ratio," Journal of Asset Management, Palgrave Macmillan, vol. 5(6), pages 423-427, April.
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