Séminaire du CIMMUL – Tak Wa Ng

Portfolio performance under benchmarking relative loss and portfolio insurance: From omega ratio to loss aversion

Tak Wa Ng

Étudiant au doctorat
École d’actuariat, Université Laval

Résumé

We study an optimal investment problem under a joint limited expected relative loss and portfolio insurance constraint with a general random benchmark. By making use of a static Lagrangian method in a complete market setting, the optimal wealth and investment strategy can be fully determined along with the existence and uniqueness of the Lagrangian multipliers. Our numerical demonstration for various commonly used random benchmarks shows a trade-off between the portfolio outperformance and underperformance relative to the benchmark, which may not be captured by the widely used Omega ratio and its utility-transformed version, reflecting the impact of the benchmarking loss constraint. Furthermore, we develop a new portfolio performance measurement indicator that incorporates the agent’s utility loss aversion relative to the benchmark via solving an equivalent optimal asset allocation problem with a benchmark-reference-based preference. We show that the expected utility performance is well depicted by looking at this new portfolio performance ratio, suggesting a more suitable portfolio performance measurement under a limited loss constraint relative to a possibly random benchmark.

Le séminaire aura lieu au local 3820 du pavillon Alexandre-Vachon et en ligne.

Pour rejoindre la réunion Zoom :
https://ulaval.zoom.us/j/62680136430?pwd=eldBYjdNTG5QR2VxTTFqbVM4UGVRZz09

Meeting ID: 626 8013 6430
Passcode: 693150