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https://hdl.handle.net/10316/88869
Title: | Global minimum variance portfolios under uncertainty: a robust optimization approach | Authors: | Caçador, Sandra Dias, Joana Matos Godinho, Pedro Manuel Cortesão |
Keywords: | Portfolio selection, multi-objective, robust optimization, relative robustness, absolute robustness, global minimum variance portfolio | Issue Date: | 3-Feb-2020 | Volume: | 76 | Abstract: | This paper presents new models which seek to optimize the first and second moments of asset returns without estimating expected returns. Motivated by the stability of optimal solutions computed by optimizing only the second moment and applying the robust optimization methodology which allows to incorporate the uncertainty in the optimization model itself, we extend and combine existing methodologies in order to define a method for computing relative-robust and absolute-robust minimum variance portfolios. For the relative robust strategy, where the maximum regret is minimized, regret is defined as the increase in the investment risk resulting from investing in a given portfolio instead of choosing the optimal portfolio of the realized scenario. The absolute robust strategy which minimizes the maximum risk was applied assuming the worst-case scenario over the whole uncertainty set. Across alternate time windows, results provide new evidence that the proposed robust minimum variance portfolios outperform non-robust portfolios. Whether portfolio measurement is based on return, risk, regret or modified Sharpe ratio, results suggest that the robust methodologies are able to optimize the first and second moments without the need to estimate expected returns. | URI: | https://hdl.handle.net/10316/88869 | DOI: | 10.1007/s10898-019-00859-x | Rights: | embargoedAccess |
Appears in Collections: | I&D CeBER - Artigos em Revistas Internacionais |
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Global minimum variance portfolios under uncertainty_Accepted version.pdf | Global minimum variance portfolios under uncertainty | 821.08 kB | Adobe PDF | View/Open |
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