A Numerical Study for Robust Active Portfolio Management with Worst-Case Downside Risk Measure

Aifan Ling,Le Tang

doi:10.1155/2014/912389

Abstract

Recently, active portfolio management problems are paid close attention by many researchers due to the explosion of fund industries. We consider a numerical study of a robust active portfolio selection model with downside risk and multiple weights constraints in this paper. We compare the numerical performance of solutions with the classical mean-variance tracking error model and the naive1/Nportfolio strategy by real market data from China market and other markets. We find from the numerical results that the tested active models are more attractive and robust than the compared models.

Highlights

The choice of an optimal portfolio of assets has become a major research topic in financial economics
Motivated by the topics of active portfolio management that are paid close attention by many researchers and the fact that there exists the rare model with explicit solutions in the robust active portfolio management literature, in this paper, we further consider a numerical study of robust active portfolio selection model that is proposed by Ling et al in [37]
The mean-WCLPMm robust tracking error problem with multiple weights constraints can be written as mwax wTμ s.t

Summary

Introduction

The choice of an optimal portfolio of assets has become a major research topic in financial economics. Goldfarb and Iyengar (2003) [32] proposed a robust factor model and later their models were developed and extended by Erdoğan et al (2008) [33] to a robust index tracking and active portfolio management problem; see Ling and Xu (2012) [34] for a similar research. Glabadanidis (2010) [11] considered a robust and efficient strategy to track and outperform a benchmark in which he proposed a sequential stepwise regression and relative method based on factor models of security returns. Motivated by the topics of active portfolio management that are paid close attention by many researchers and the fact that there exists the rare model with explicit solutions in the robust active portfolio management literature, in this paper, we further consider a numerical study of robust active portfolio selection model that is proposed by Ling et al in [37].

Robust Active Portfolio Problems

The Solutions

Numerical Results

Conclusions