Sensitivity analysis of portfolio properties with budget constraints

DOI10.1504/IJMOR.2011.040028MaRDI QIDQ548468zbMATH OpenOpenAlexFDO

Authors Marco Percoco, E. Borgonovo

Publication date 28 June 2011

Published in International Journal of Mathematics in Operational Research (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1504/ijmor.2011.040028

zbMATH Keywords

budget constraintsGARCH volatilityportfolio managementportfolio returnssensitivity analysisvalue at riskvariance

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Statistical methods; risk measures (91G70)

Review text

Summary: We develop a framework for understanding how variations of portfolio properties are apportioned to changes in portfolio composition as trading is performed in the presence of budget constraints. Our approach is based on the concept of constrained derivative. It allows one to obtain the simultaneous sensitivity of portfolio properties w.r.t. assets groups for any choice of pivotal asset. Analytical expressions for the sensitivity of portfolio returns, variance, GARCH volatility and Value at Risk (VaR) are derived. A numerical exemplification is proposed with reference to the 30 assets of the Dow Jones Index.

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