Portfolio optimization in an upside potential and downside risk framework

Cumova, Denisa; Nawrocki, David N.

doi:10.1016/j.jeconbus.2013.08.001

Cited by 40 publications

(18 citation statements)

References 48 publications

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“…This means that investors are risk averse below a reference point and risk seeking above expressing reverse S‐shaped preferences. This is probably a very common case where investors wish to reduce downside risk while at the same time preserve much of the upside returns as economically feasible (Cumova and Nawrocki, ). Experimental evidence provides additional evidence that reverse S‐shaped utility function may be more descriptive of actual behavior, since investors are more risk seeking following gains and more risk averse following losses (Barberis et al ., 2001; Post and Levy, ).…”

Section: Estimation and Resultsmentioning

confidence: 99%

Does Global Shapes of Utility Functions Matter for Investment Decisions?

Ranganathan

2018

Bulletin of Econ Res

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The study investigates relation between global shapes of utility functions and investor preferences towards particular asset classes for investment decisions. Global shapes that emerge are fully concave, fully convex, Reverse‐S and S‐shaped utility functions, using the certainty equivalence method for eliciting risk preferences. Investor clusters show existence of two types of investors, preference towards financial assets (bank deposits, insurance, pension and provident fund, shares and mutual funds) vs traditional assets (chit funds, gold and precious metals, real estate, postal savings, and government bonds). Investors with reverse‐S and S‐shaped utility functions prefer investment in financial assets, while investors with fully concave and fully convex utility functions prefer traditional assets. Prior studies suggest reverse‐S and S‐shaped category of investors perceive risk in terms of gains and losses, and financial assets with ready price quotes facilitate such buying and selling. In contrast, fully concave and fully convex utility functions prefer investment in traditional assets that requires long term horizon and stable risk preferences. Among demographics, males with reverse‐S shaped utility function are more likely to invest in financial assets, and increase in dependents reduces the possibility to invest in financial assets.

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Section: Estimation and Resultsmentioning

confidence: 99%

Does Global Shapes of Utility Functions Matter for Investment Decisions?

Ranganathan

2018

Bulletin of Econ Res

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“…This paper proposes a mixed-integer interval-parameter two-stage stochastic programming model with downside risk control for items allocation to postal operators. The proposed model is able to: (1) generate optimal long-term items allocation plans for postal operators under different target profits, control factor for limiting system risk and uncertain events realization; (2) calculate optimal allocation targets between supplier and postal-logistics centers under different risk attributes; (3) reach the tradeoffs between the expected profit and system risk; (4) measure the recourse cost variability; (5) efficiently reflect the uncertainties expressed as probability distribution functions and interval values; and (6) generate more robust solutions, compared to the available optimization models for solving problems in the postal sector. A numerical example is provided to verify the effectiveness of the presented model.…”

Section: Discussionmentioning

confidence: 99%

“…Metoda "downside" rizika (DR) [1] jedna je od metoda koja može efikasno oponašati percepciju rizika. Ova metoda za procenu i upravljanje rizikom do sada je primenjena u mnogim oblastima, kao što su: upravljanje investicijama [2], upravljanje vodnim resursima [3][4][5][6], upravljanje tržištem električne energije [7][8][9][10][11], poljoprivreda [12], medicina [13], logistika [14], itd. Ova metoda meri rizik ispod određene tačke [6]; tj.…”

Section: Uvodunclassified

Downside risk management in the postal sector

Šimić¹,

Dimitrijević²

2019

Tehnika

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Saobraćajni fakultet, BeogradU radu je predstavljen model mešovitog celobrojnog intervalnog dvofaznog stohastičkog programiranja sa "downside" rizikom za alokaciju artikala poštanskim operatorima. Predloženi model može da: (1) generiše optimalne dugoročne planove alokacije artikala poštanskim operatorima za različite vrednosti ciljanog profita, kontrolnog faktora za ograničavanje rizika i realizacije neizvesnih događaja; (2) izračuna optimalne alokacione kvote između dobavljača i poštansko-logističkih centara za različite vrednosti parametara rizika; (3) postigne kompromis između očekivanog profita i sistemskog rizika; (4) meri varijabilnost troškova sprovođenja korektivnih akcija; (5) efikasno reflektuje neizvesnosti izražene u formi raspodela verovatnoća i numeričkih intervala; i (6) generiše robusnija rešenja od onih koja se mogu dobiti primenom dostupnih optimizacionih modela za rešavanje problema u poštanskom sektoru. Dat je numerički primer da bi se verifikovala efektivnost prezentovanog modela. Nekoliko važnih preporuka o budućem istraživanju je istaknuto i prodiskutovano.

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“…However, investors usually treat gains and losses asymmetrically. Recently, some methods measuring the downside risk have been proposed, including semi-variance [2,3], lower partial moment [4,5], lower partial standard deviation [6], value-at-risk (VaR) [7][8][9] and conditional tail expectation [10,11]. Among them, the value-at-risk is one of the most popular measuring risk methods in the practice of risk management.…”

Section: Introductionmentioning

confidence: 99%

Optimal Portfolio under Non-Extensive Statistical Mechanics and Value-at-Risk Constraints

2018

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In this study, we consider the optimal portfolio selection problem with a value-at-risk constraint in the nonextensive statistical mechanics framework. We propose a portfolio selection model, which is suitable not only for normal return distributions, but also for non-normal return distributions. Using Chinese stock data, under the normal and q-Gaussian return distributions, we provide empirical results. The results indicate that portfolio selections under the q-Gaussian return distributions are considerably different from those under the normal return distributions. Moreover, by using the q-Gaussian distribution, the underestimated portfolio risk can be effectively avoided.

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Portfolio optimization in an upside potential and downside risk framework

Cited by 40 publications

References 48 publications

Does Global Shapes of Utility Functions Matter for Investment Decisions?

Does Global Shapes of Utility Functions Matter for Investment Decisions?

Downside risk management in the postal sector

Optimal Portfolio under Non-Extensive Statistical Mechanics and Value-at-Risk Constraints

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