Dynamic allocation strategies for absolute and relative loss control

Dynamically allocating wealth between cash and a performance-seeking portfolio allows investors to limit drawdowns to a chosen pre-defined level or risk-budget. This paper introduces variants and generalizations of the maximum drawdown metric and the corresponding risk-control strategies, such as excess drawdown, relative drawdown, and rolling drawdowns control. We discuss the relevance of these risk-management constraints, prove that they can be insured using dynamic allocation, and characterize the corresponding risk-control strategies.