Portfolio Benchmarking Under Drawdown Constraint and Stochastic Sharpe Ratio
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Publication:4579825
DOI10.1137/16M1100861zbMATH Open1410.91406arXiv1610.08558WikidataQ129986512 ScholiaQ129986512MaRDI QIDQ4579825FDOQ4579825
Authors: Ankush Agarwal, Ronnie Sircar 
Publication date: 10 August 2018
Published in: SIAM Journal on Financial Mathematics (Search for Journal in Brave)
Abstract: We consider an investor who seeks to maximize her expected utility derived from her terminal wealth relative to the maximum performance achieved over a fixed time horizon, and under a portfolio drawdown constraint, in a market with local stochastic volatility (LSV). In the absence of closed-form formulas for the value function and optimal portfolio strategy, we obtain approximations for these quantities through the use of a coefficient expansion technique and nonlinear transformations. We utilize regularity properties of the risk tolerance function to numerically compute the estimates for our approximations. In order to achieve similar value functions, we illustrate that, compared to a constant volatility model, the investor must deploy a quite different portfolio strategy which depends on the current level of volatility in the stochastic volatility model.
Full work available at URL: https://arxiv.org/abs/1610.08558
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Numerical methods (including Monte Carlo methods) (91G60) Portfolio theory (91G10) Applications of stochastic analysis (to PDEs, etc.) (60H30)
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Cited In (7)
- Title not available (Why is that?)
- Portfolio management with benchmark related incentives under mean reverting processes
- Portfolio management under drawdown constraint in discrete-time financial markets
- Portfolio optimization managing value at risk under heavy tail return, using stochastic maximum principle
- A dynamic programming approach to path-dependent constrained portfolios
- Drawdown beta and portfolio optimization
- Sharper asset ranking from total drawdown durations
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