Portfolio optimization under the generalized hyperbolic distribution: optimal allocation, performance and tail behavior

被引:5
作者
Birge, John R. [1 ]
Chavez-Bedoya, L. [2 ]
机构
[1] Univ Chicago, Booth Sch Business, 5807 S Woodlawn Ave, Chicago, IL 60637 USA
[2] ESAN Grad Sch Business, Alonso de Molina 1652, Lima, Peru
关键词
Portfolio optimization; Generalized hyperbolic distribution; Mean-variance; Minimum-risk portfolio; Tail density; MEAN-VARIANCE; UTILITY; APPROXIMATION;
D O I
10.1080/14697688.2020.1762913
中图分类号
F8 [财政、金融];
学科分类号
0202 ;
摘要
In this paper, we analyze the asset allocation problem under the generalized hyperbolic (GH) distribution of returns and exponential utility. We provide closed-form expressions to compute the optimal portfolio weights; and we introduce two new measures, associated with a more general mean-risk trade-off, that allow us to express the optimal solution as an affine combination of two efficient portfolios: one minimizing risk and the other maximizing mean given a particular level of risk. Also, we prove that optimal portfolio performance is not monotonic in tail behavior since it increases when tails become lighter or heavier with respect to a particular threshold; however, distributions with heavier tails produce more conservative allocations in terms of the weight given to the minimum-risk portfolio increments. Finally, the practical relevance of our paper show that tail behavior greatly affects portfolio construction and performance, and that including non-normality features of short-term asset returns, through a GH distribution, has the potential to significantly improve the investor's certainty equivalent excess return.
引用
收藏
页码:199 / 219
页数:21
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