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Title: Inverse portfolio problem with coherent risk measures
Authors: Grechuk, Bogdan
Zabarankin, M.
First Published: 9-Oct-2015
Publisher: Elsevier
Citation: European Journal of Operational Research, 2016, 249, pp. 740-750
Abstract: In general, a portfolio problem minimizes risk (or negative utility) of a portfolio of financial assets with respect to portfolio weights subject to a budget constraint. The inverse portfolio problem then arises when an investor assumes that his/her risk preferences have a numerical representation in the form of a certain class of functionals, e.g. in the form of expected utility, coherent risk measure or mean-deviation functional, and aims to identify such a functional, whose minimization results in a portfolio, e.g. a market index, that he/she is most satisfied with. In this work, the portfolio risk is determined by a coherent risk measure, and the rate of return of investor’s preferred portfolio is assumed to be known. The inverse portfolio problem then recovers investor’s coherent risk measure either through finding a convex set of feasible probability measures (risk envelope) or in the form of either mixed CVaR or negative Yaari’s dual utility. It is solved in single-period and multi-period formulations and is demonstrated in a case study with the FTSE 100 index.
DOI Link: 10.1016/j.ejor.2015.09.050
ISSN: 0377-2217
Embargo on file until: 9-Oct-2018
Version: Post-print
Status: Peer-reviewed
Type: Journal Article
Rights: Creative Commons “Attribution Non-Commercial No Derivatives” licence CC BY-NC-ND, further details of which can be found via the following link:
Appears in Collections:Published Articles, Dept. of Mathematics

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