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Shortfall as a Risk Measure: Properties, Optimization and Applications
Company: Journal of Economic Dynamics and Control
Year Of Publication: 2004
Month Of Publication: April
Pages: 1353-1381
Download Count: 1196
View Count: 9186
Comment Num: 0
Language: EN
Who Can Read: Free
Date: 9-23-2002
Publisher: Administrator
Motivated from second-order stochastic dominance, we introduce a risk measure that we call shortfall. We examine shortfall’s properties and discuss its relation to such commonly used risk measures as standard deviation, VaR, lower partial moments, and coherent risk measures. We show that the mean-shortfall optimization problem, unlike mean-VaR, can be solved efficiently as a convex optimization problem, while the sample mean-shortfall portfolio optimization problem can be solved very efficiently as a linear optimization problem. We provide empirical evidence (a) in asset allocation, and (b) in a problem of tracking an index using only a limited number of assets that the mean-shortfall approach might have advantages over mean–variance. (pre-publication versio
Bertsimas, Dimitris Sign in to follow this author
Lauprete, Gregory. J. Sign in to follow this author
Samarov, Alexander Sign in to follow this author
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