Min-Regret Methods in Portfolio Transition

5 Pages Posted: 25 Jul 2017

Date Written: July 21, 2017

Abstract

Investors often regret their trades. Regret can significantly impact their strategic decisions, for example, by making them abandon a pre-planned investment strategy during stressed market conditions. Therefore, minimizing expected regret is a prudent way to construct investment strategies. We propose to measure the cost of regret as a price of regret protection option, and apply this new metric to portfolio transition strategies, where the objective is to increase (or decrease) risky exposures over a specified period of time. Regret-averse investors should design their portfolio transition with low cost of regret.

Keywords: portfolio management, trading, min-regret methods

JEL Classification: C02

Suggested Citation

Ordine, Andrei, Min-Regret Methods in Portfolio Transition (July 21, 2017). Available at SSRN: https://ssrn.com/abstract=3006742 or http://dx.doi.org/10.2139/ssrn.3006742

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