Structured Portfolio Analysis Under Sharpe-Omega Ratio

Abstract:     
This paper deals with performance measurement of financial structured products. For this purpose, we introduce the Sharpe-Omega ratio, based on put as downside risk measure. This allows to take account of the asymmetry of the return probability distribution. We provide general results about the optimization of some standard structured portfolios with respect to the Sharpe-Omega ratio. We determine in particular the optimal combination of risk free, stock and call/put instruments with respect to this performance measure. We show that, contrary to Sharpe ratio maximization (Goetzmann et al., 2002), the payoff of the optimal structured portfolio is not necessarily increasing and concave. We also discuss about the interest of the asset management industry to reward high Sharpe-Omega ratios.

Keywords: Structured portfolio, Performance measure, Sharpe-Omega ratio

JEL Classification: C61, G11

working papers series