Alternative to the Mean-Variance Asset Allocation Analysis: A Scenario Methodology for Portfolio Selection

[en] This paper introduces a new methodology to optimize the allocation of financial assets. The objective of the model is to maximize the expected return of the portfolio under constraints limiting its Value-at-Risk. The assets could consist in stocks as well as options. We rely on a flexible scenario tree approach to represent the future prices. In order to reduce the number of leaves and maintain the model tractable, stocks prices are obtained through the Fama & French empirical asset pricing model. Experiments on historical data are performed to illustrate the method and show the performance of the approach. Different strategies are compared: considering various market distributions, several factor models and a few portfolio hypothesis.

Research Center/Unit :

QuantOM

Disciplines :

Finance

Author, co-author :

Schyns, Michael ; Université de Liège - ULiège > HEC - École de gestion de l'ULiège > Informatique de gestion

Hübner, Georges ; Université de Liège - ULiège > HEC - École de gestion de l'ULiège > Gestion financière

Crama, Yves ; Université de Liège - ULiège > HEC - École de gestion de l'ULiège > Recherche opérationnelle et gestion de la production

Language :

English

Title :

Alternative to the Mean-Variance Asset Allocation Analysis: A Scenario Methodology for Portfolio Selection

Publication date :

08 April 2009

Main work title :

Stock Market Volatility

Editor :

Gregoriou, Greg N.

Publisher :

Taylor & Francis Group, Boca Raton, United States

ISBN/EAN :

978-1-4200-9954-6

Collection name :

Chapman & Hall / CRC Finance

Pages :

231-254

Additional URL :

http://208.254.79.11/product/isbn/9781420099546

Available on ORBi :

since 23 April 2009

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Bibliography

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