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Determining an optimal multiplier in dynamic core-satellite strategies

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  • CALIMAN, Thibaut
  • D’HONDT, Catherine
  • PETITJEAN, Mikael

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.
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Suggested Citation

  • CALIMAN, Thibaut & D’HONDT, Catherine & PETITJEAN, Mikael, 2013. "Determining an optimal multiplier in dynamic core-satellite strategies," LIDAM Reprints CORE 2568, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2568
    Note: In : Journal of Asset Management, 14(4), 210-227, 2013
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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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