This proposal puts forth a methodology that can be used to derive optimal asset allocations for general forms of Loss Aversion, explicitly accounting for the real risks associated with large-scale investments. The portfolio problem is solved by a stochastic algorithm based on Particle Swarm Optimization, which permits the inclusion of transaction costs and other constraints faced by investors and fund managers. An empirical study compares the proposed approach to traditional strategies in terms of portfolio composition, downside protection in adverse market conditions and global performance.

Avellone, A., Fiori, A., Foroni, I. (2021). Portfolio Optimization with Nonlinear Loss Aversion and Transaction Costs. In M. Corazza, M. Gilli, C. Perna, C. Pizzi, M. Sibillo (a cura di), Mathematical and Statistical Methods for Actuarial Sciences and Finance (pp. 51-56). Springer [10.1007/978-3-030-78965-7_9].

Portfolio Optimization with Nonlinear Loss Aversion and Transaction Costs

Alessandro Avellone;Anna Maria Fiori
;
Ilaria Foroni
2021

Abstract

This proposal puts forth a methodology that can be used to derive optimal asset allocations for general forms of Loss Aversion, explicitly accounting for the real risks associated with large-scale investments. The portfolio problem is solved by a stochastic algorithm based on Particle Swarm Optimization, which permits the inclusion of transaction costs and other constraints faced by investors and fund managers. An empirical study compares the proposed approach to traditional strategies in terms of portfolio composition, downside protection in adverse market conditions and global performance.
Capitolo o saggio
Asset allocation, Downside risk, Particle swarm optimization, Cumulative prospect theory
English
Mathematical and Statistical Methods for Actuarial Sciences and Finance
978-3-030-78964-0
Avellone, A., Fiori, A., Foroni, I. (2021). Portfolio Optimization with Nonlinear Loss Aversion and Transaction Costs. In M. Corazza, M. Gilli, C. Perna, C. Pizzi, M. Sibillo (a cura di), Mathematical and Statistical Methods for Actuarial Sciences and Finance (pp. 51-56). Springer [10.1007/978-3-030-78965-7_9].
Avellone, A; Fiori, A; Foroni, I
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/342146
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