Journal of Banking & Finance Vol. 119 2020
Hedging crash risk in optimal portfolio selection
Abstract
When almost all underlying assets suddenly lose a certain part of their nominal value in a market crash, the diversification effect of portfolios in a normal market condition no longer works. We integrate the crash risk into portfolio management and investigate performance measures, hedging and optimization of portfolio selection involving derivatives. A suitable convex conic programming framework based on parametric approximation method is proposed to make the problem a tractable one. Simulation analysis and empirical study are performed to test the proposed approach.
- DOI
- 10.1016/j.jbankfin.2020.105905
- Volume
- 119
- Pages
- 105905
- Language
- en
- Sources
- openalex openalex crossref bibtex:phds-export.bib