The objective of this work is to illustrate an active portfolio management methodology reducing the risk of the portfolio through stabilization of returns, by applying the proportional, integral, derivative (PID) control on the pure portfolio return variable. Two portfolios are analyzed and their financial performance is compared: the PID methodology implementation yielding the experimental portfolio on one side, and its corresponding benchmark, the DJ Euro Stoxx 50 Index on the other side. The experimental portfolio is able to diminish the volatility, and in particular, to accomplish a smaller down side risk than its corresponding benchmark. © 2011 Macmillan Publishers Ltd.
Gandolfi, G., Sabatini, A., Rossolini, M. (2011). A new asset allocation technique to reduce financial portfolio risk. JOURNAL OF ASSET MANAGEMENT, 12(6), 418-425 [10.1057/jam.2011.22].
A new asset allocation technique to reduce financial portfolio risk
ROSSOLINI, MONICA
2011
Abstract
The objective of this work is to illustrate an active portfolio management methodology reducing the risk of the portfolio through stabilization of returns, by applying the proportional, integral, derivative (PID) control on the pure portfolio return variable. Two portfolios are analyzed and their financial performance is compared: the PID methodology implementation yielding the experimental portfolio on one side, and its corresponding benchmark, the DJ Euro Stoxx 50 Index on the other side. The experimental portfolio is able to diminish the volatility, and in particular, to accomplish a smaller down side risk than its corresponding benchmark. © 2011 Macmillan Publishers Ltd.
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