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Portfolio benchmarking under drawdown constraint and stochastic sharpe ratio

Author(s): Agarwal, A; Sircar, Ronnie

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dc.contributor.authorAgarwal, A-
dc.contributor.authorSircar, Ronnie-
dc.date.accessioned2021-10-11T14:17:59Z-
dc.date.available2021-10-11T14:17:59Z-
dc.date.issued2018-01-01en_US
dc.identifier.citationAgarwal, A, Sircar, R. (2018). Portfolio benchmarking under drawdown constraint and stochastic sharpe ratio. SIAM Journal on Financial Mathematics, 9 (2), 435 - 464. doi:10.1137/16M1100861en_US
dc.identifier.urihttp://arks.princeton.edu/ark:/88435/pr18s06-
dc.description.abstract© 2018 Society for Industrial and Applied Mathematics. We consider an investor who seeks to maximize her expected utility of wealth relative to a benchmark, or target over a finite time horizon, and under a portfolio drawdown constraint, in a market with local stochastic volatility. We propose a new investor objective paradigm which allows the investor to target the portfolio benchmark while obeying the constraint, both of which can be characterized in terms of the running maximum wealth process. In the absence of closed-form formulas for the value function and optimal portfolio strategy in the incomplete market models we consider, 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 utility, compared to a constant volatility model, we illustrate that the investor must deploy a quite different portfolio strategy which depends on the current level of volatility.en_US
dc.format.extent435 - 464en_US
dc.language.isoen_USen_US
dc.relation.ispartofSIAM Journal on Financial Mathematicsen_US
dc.rightsAuthor's manuscripten_US
dc.titlePortfolio benchmarking under drawdown constraint and stochastic sharpe ratioen_US
dc.typeJournal Articleen_US
dc.identifier.doidoi:10.1137/16M1100861-
dc.identifier.eissn1945-497X-
pu.type.symplectichttp://www.symplectic.co.uk/publications/atom-terms/1.0/journal-articleen_US

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