[Lecture] Downside risk optimization with random targets and portfolio amplitude

2019-05-10

Title: Downside risk optimization with random targets and portfolio amplitude
Speaker: Prof. Yao Jing, Heriot-Watt University
Time: Wednesday, May 15, 15:00-16:00
Venue: Room 4131, Building No.4, Wushan Campus

Abstract:
In this paper, we rationalize using downside risk optimization subject to a random target in portfolio selection. In context of normality, we derive analytical solutions to the downside risk optimization with respect to random targets and investigate how the random target affects the optimal solutions. In doing so, we propose using portfolio amplitude, as a new measure in literature, to characterize the investment strategy. Particularly, we demonstrate the mechanism by which the random target inputs its impact into the system and alters the optimal portfolio selection. Our results underpin why investors prefer holding some specific assets in following random targets and provide explanations for some special investment strategies, such as constructing a stock portfolio following a bond index. Numerical examples are presented to clarify our theoretical results.


Announced by the School of Mathematics


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