Optimal Portfolios Under a Correlation Constraint

Forthcoming, Quantitative Finance

27 Pages Posted: 25 May 2016 Last revised: 2 Nov 2017

See all articles by Carole Bernard

Carole Bernard

Grenoble Ecole de Management; Vrije Universiteit Brussel (VUB)

Dries Cornilly

Vrije Universiteit Brussel (VUB); KU Leuven

Steven Vanduffel

Vrije Universiteit Brussel (VUB)

Date Written: August 30, 2017

Abstract

Pourbabaee, Kwak, and Pirvu (2016) determine the constant-mix strategy that minimizes Capital at Risk (CaR) under a negative correlation constraint with a benchmark. We extend their result to any increasing law invariant objective function without condition on the sign of the correlation. In doing so we use characterization results of optimal portfolios that were recently established in Bernard, Boyle, and Vanduffel (2014a). We illustrate the theoretical results by establishing the portfolio that has maximum Sharpe ratio under a correlation constraint.

Keywords: Optimal portfolio selection, correlation constraint, Sharpe ratio, Mean-variance, Capital at Risk

Suggested Citation

Bernard, Carole and Cornilly, Dries and Vanduffel, Steven, Optimal Portfolios Under a Correlation Constraint (August 30, 2017). Forthcoming, Quantitative Finance. Available at SSRN: https://ssrn.com/abstract=2783524 or http://dx.doi.org/10.2139/ssrn.2783524

Carole Bernard

Grenoble Ecole de Management ( email )

12, rue Pierre Sémard
Grenoble Cedex, 38003
France

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

Dries Cornilly

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
Brussels, Brussels 1050
Belgium

KU Leuven

Celestijnenlaan 200B
Leuven, Vlaams-Brabant 3001
Belgium

Steven Vanduffel (Contact Author)

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
Brussels, Brabant 1050
Belgium

HOME PAGE: http://www.stevenvanduffel.com

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