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Dynamic tracking error with shortfall control using stochastic programming

Author

Listed:
  • Diana Barro

    (Department of Economics, University Of Venice C� Foscari)

  • Elio Canestrelli

    (Department of Economics, University Of Venice C� Foscari)

Abstract

In this contribution we propose a dynamic tracking error problem and we consider the problem of monitoring at discrete point the shortfall of the portfolio below a set of given reference levels of wealth. We formulate and solve the resulting dynamic optimization problem using stochastic programming. The resulting problem allows for a great flexibility in the combination of a tracking goal and a downside risk protection through a discrete monitoring of the shortfalls. We provide the results of a out-of-sample simulation experiments, on real data, for different portfolio configurations and different market conditions.

Suggested Citation

  • Diana Barro & Elio Canestrelli, 2012. "Dynamic tracking error with shortfall control using stochastic programming," Working Papers 2012_18, Department of Economics, University of Venice "Ca' Foscari", revised 2012.
    • Handle: RePEc:ven:wpaper:2012_18
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Dynamic portfolio optimization; Tracking error; Shortfall;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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