Dr. Thierry Post, Professor at NUGSB
Co-authors: Miloš Kopa, Jana Junová, Charles University
Large investors such as pension funds and sovereign wealth funds need to account for the fact that investment gains and losses are not mirror images of each other. Ignoring this asymmetry can lead to portfolios that sacrifice too much upside without providing enough protection on the downside.
This study develops a practical optimization method for investments with asymmetric payoffs, including trend-following strategies and option-based portfolios. Unlike conventional portfolio methods that focus mainly on average returns and overall volatility, the proposed approach is built to handle skewed return patterns and other forms of asymmetry that are central to many real-world strategies.
The authors show that the method is economically well founded, computationally feasible, and effective in real data. In out-of-sample tests, it improves the performance of an equity industry rotation strategy by tens to hundreds of basis points per year, without increasing economic risk relative to existing alternatives.
Read the full article here
Co-authors: Miloš Kopa, Jana Junová, Charles University
Large investors such as pension funds and sovereign wealth funds need to account for the fact that investment gains and losses are not mirror images of each other. Ignoring this asymmetry can lead to portfolios that sacrifice too much upside without providing enough protection on the downside.
This study develops a practical optimization method for investments with asymmetric payoffs, including trend-following strategies and option-based portfolios. Unlike conventional portfolio methods that focus mainly on average returns and overall volatility, the proposed approach is built to handle skewed return patterns and other forms of asymmetry that are central to many real-world strategies.
The authors show that the method is economically well founded, computationally feasible, and effective in real data. In out-of-sample tests, it improves the performance of an equity industry rotation strategy by tens to hundreds of basis points per year, without increasing economic risk relative to existing alternatives.
Read the full article here