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Alternative Risk Measures for Alternative Investments

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  • Yannick Malevergne

    (EM - EMLyon Business School)

  • Ali Chabaane
  • Jean-Paul Laurent
  • Françoise Turpin

Abstract

This paper deals with portfolio optimization under different risk constraints. We use a set of hedge funds where departures from normality are significant. We optimize the expected return under standard deviation, semivariance, value-at-risk (VAR) and expected shortfall (or CVAR) constraints. As far as the VAR is concerned, we compare different estimators. While the optimization with respect to VAR constraints appears to be difficult and lengthy, there are very fast optimization algorithms for the other risk constraints. We find that the choice of a particular VAR estimator is less discriminant than the choice of the risk constraint itself. We provide financial interpretations of the optimal portfolios associated with a decomposition of risk measures.

Suggested Citation

  • Yannick Malevergne & Ali Chabaane & Jean-Paul Laurent & Françoise Turpin, 2006. "Alternative Risk Measures for Alternative Investments," Post-Print hal-02311832, HAL.
    • Handle: RePEc:hal:journl:hal-02311832
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    Cited by:

    1. Ruili Sun & Tiefeng Ma & Shuangzhe Liu & Milind Sathye, 2019. "Improved Covariance Matrix Estimation for Portfolio Risk Measurement: A Review," JRFM, MDPI, vol. 12(1), pages 1-34, March.
    2. H. Fink & S. Geissel & J. Herbinger & F. T. Seifried, 2019. "Portfolio Optimization with Optimal Expected Utility Risk Measures," Working Paper Series 2019-07, University of Trier, Research Group Quantitative Finance and Risk Analysis.
    3. Thapar, Rishi & Minsky, Bernard & Obradovic, M & Tang, Qi, 2009. "Applying a global optimisation algorithm to Fund of Hedge Funds portfolio optimisation," MPRA Paper 17099, University Library of Munich, Germany.
    4. El Kalak, Izidin & Azevedo, Alcino & Hudson, Robert, 2016. "Reviewing the hedge funds literature I: Hedge funds and hedge funds' managerial characteristics," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 85-97.
    5. Adam, Alexandre & Houkari, Mohamed & Laurent, Jean-Paul, 2008. "Spectral risk measures and portfolio selection," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1870-1882, September.
    6. S. Geissel & H. Graf & J. Herbinger & F. T. Seifried, 2022. "Portfolio optimization with optimal expected utility risk measures," Annals of Operations Research, Springer, vol. 309(1), pages 59-77, February.

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