Instability of portfolio optimization under coherent risk measures

I. Kondor, István Varga-Haszonits

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

It is shown that the axioms for coherent risk measures imply that whenever there is a pair of portfolios such that one of them dominates the other in a given sample (which happens with finite probability even for large samples), then there is no optimal portfolio under any coherent measure on that sample, and the risk measure diverges to minus infinity. This instability was first discovered in the special example of Expected Shortfall which is used here both as an illustration and as a springboard for generalization.

Original languageEnglish
Pages (from-to)425-437
Number of pages13
JournalAdvances in Complex Systems
Volume13
Issue number3
DOIs
Publication statusPublished - Jun 2010

Keywords

  • Coherent risk measures
  • estimation
  • expected shortfall
  • financial risk
  • portfolio optimization

ASJC Scopus subject areas

  • Control and Systems Engineering
  • General

Cite this

Instability of portfolio optimization under coherent risk measures. / Kondor, I.; Varga-Haszonits, István.

In: Advances in Complex Systems, Vol. 13, No. 3, 06.2010, p. 425-437.

Research output: Contribution to journalArticle

Kondor, I. ; Varga-Haszonits, István. / Instability of portfolio optimization under coherent risk measures. In: Advances in Complex Systems. 2010 ; Vol. 13, No. 3. pp. 425-437.
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