Portfolio Benchmarking under Drawdown Constraint and Stochastic Sharpe Ratio

Portfolio Benchmarking under Drawdown Constraint and Stochastic Sharpe Ratio

We consider an investor who seeks to maximize her expected utility derived from her terminal wealth relative to the maximum wealth achieved over a fixed time horizon, and under a portfolio drawdown constraint, in a market with local stochastic volatility (LSV). The newly proposed investment objective paradigm also allows the investor to set portfolio benchmark targets. In the absence of closed-...

Portfolio Optimization under Local-Stochastic Volatility: Coefficient Taylor Series Approximations and Implied Sharpe Ratio

We study the finite horizonMerton portfolio optimization problem in a general local-stochastic volatility setting. Using model coefficient expansion techniques, we derive approximations for the both the value function and the optimal investment strategy. We also analyze the ‘implied Sharpe ratio’ and derive a series approximation for this quantity. The zeroth-order approximation of the value fu...

Portfolio Optimization under Local-Stochastic Volatility: Coefficient Taylor Series Approximations & Implied Sharpe Ratio

We study the finite horizonMerton portfolio optimization problem in a general local-stochastic volatility setting. Using model coefficient expansion techniques, we derive approximations for the both the value function and the optimal investment strategy. We also analyze the ‘implied Sharpe ratio’ and derive a series approximation for this quantity. The zeroth-order approximation of the value fu...

Possibilistic Sharpe Ratio Based Novice Portfolio Selection Models

This paper uses the concept of possibilistic risk aversion to propose a new approach for portfolio selection in fuzzy environment. Using possibility theory, the possibilistic mean, variance, standard deviation and risk premium of a fuzzy number are established. Possibilistic Sharpe ratio is defined as the ratio of possibilistic risk premium and possibilistic standard deviation of a portfolio. T...

The Sharpe Ratio, Range and Maximal Drawdown of a Brownian Motion