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Spectral risk measures and portfolio selection

Author

Listed:
  • Alexandre Adam

    (Financial models, Group ALM - BNP Paribas)

  • Mohamed Houkari

    (Financial models, Group ALM - BNP Paribas, SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

  • Jean-Paul Laurent

    (Financial models, Group ALM - BNP Paribas, SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

Abstract

This paper deals with risk measurement and portfolio optimization under risk constraints. Firstly we give an overview of risk assessment from the viewpoint of risk theory, focusing on moment-based, distortion and spectral risk measures. We subsequently apply these ideas to an asset management framework using a database of hedge funds returns chosen for their non- Gaussian features. We deal with the problem of portfolio optimization under risk constraints and lead a comparative analysis of efficient portfolios. We show some robustness of optimal portfolios with respect to the choice of risk measure. Unsurprisingly, risk measures that emphasize large losses lead to slightly more diversified portfolios. However, risk measures that account primarily for worst case scenarios overweight funds with smaller tails which mitigates the relevance of diversification.

Suggested Citation

  • Alexandre Adam & Mohamed Houkari & Jean-Paul Laurent, 2007. "Spectral risk measures and portfolio selection," Working Papers hal-00165641, HAL.
    • Handle: RePEc:hal:wpaper:hal-00165641
    Note: View the original document on HAL open archive server: https://hal.science/hal-00165641
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    File URL: https://hal.science/hal-00165641/document
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    Citations

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    Cited by:

    1. Penikas, Henry, 2010. "Copula-Models in Foreign Exchange Risk-Management of a Bank," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 17(1), pages 62-87.
    2. Penikas, H., 2010. "Financial Applications of Copula-Models," Journal of the New Economic Association, New Economic Association, issue 7, pages 24-44.

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