A Data-Driven Optimization Heuristic for Downside Risk Minimization

22 Pages Posted: 21 Jun 2006

See all articles by Manfred Gilli

Manfred Gilli

University of Geneva - Research Center for Statistics; Swiss Finance Institute

Evis Këllezi

Mirabaud & Cie

Hilda Hysi

University of Geneva - Department of Econometrics

Multiple version iconThere are 2 versions of this paper

Abstract

In practical portfolio choice models risk is often defined as VaR, expected short-fall, maximum loss, Omega function, etc. and is computed from simulated future scenarios of the portfolio value. It is well known that the minimization of these functions can not, in general, be performed with standard methods. We present a multi-purpose data-driven optimization heuristic capable to deal efficiently with a variety of risk functions and practical constraints on the positions in the portfolio. The efficiency and robustness of the heuristic is illustrated by solving a collection of real world portfolio optimization problems using different risk functions such as VaR, expected shortfall, maximum loss and Omega function with the same algorithm.

Keywords: Portfolio optimization, Heuristic optimization, Threshold accepting, Downside risk

JEL Classification: C61, C63, G11, G32

Suggested Citation

Gilli, Manfred and Këllezi, Evis and Hysi, Hilda, A Data-Driven Optimization Heuristic for Downside Risk Minimization. Swiss Finance Institute Research Paper No. 06-2. Available at SSRN: https://ssrn.com/abstract=910233 or http://dx.doi.org/10.2139/ssrn.910233

Manfred Gilli (Contact Author)

University of Geneva - Research Center for Statistics ( email )

Geneva
Switzerland
+41223798222 (Phone)
+41223798299 (Fax)

HOME PAGE: http://www.unige.ch/ses/metri/gilli/

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Evis Këllezi

Mirabaud & Cie ( email )

Boulevard du Théâtre 3
Geneva, 1204
Switzerland

Hilda Hysi

University of Geneva - Department of Econometrics ( email )

102 Bd Carl Vogt
Geneva 4, 1211
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
1,139
Abstract Views
4,275
rank
17,817
PlumX Metrics