TY - JOUR
T1 - Risk management and dynamic portfolio selection with stable Paretian distributions
AU - Ortobelli, Sergio
AU - Rachev, Svetlozar T.
AU - Fabozzi, Frank J.
N1 - Copyright:
Copyright 2010 Elsevier B.V., All rights reserved.
PY - 2010/3
Y1 - 2010/3
N2 - This paper assesses stable Paretian models in portfolio theory and risk management. We describe an investor's optimal choices under the assumption of non-Gaussian distributed equity returns in the domain of attraction of a stable law. In particular, we examine dynamic portfolio strategies with and without transaction costs in order to compare the forecasting power of discrete-time optimal allocations obtained under different stable Paretian distributional assumptions. We also consider a conditional extension of the stable Paretian approach and compare the model with others that consider different distributional assumptions. Finally, we empirically evaluate the forecasting power of the model for predicting the value at risk of a heavy-tailed return series.
AB - This paper assesses stable Paretian models in portfolio theory and risk management. We describe an investor's optimal choices under the assumption of non-Gaussian distributed equity returns in the domain of attraction of a stable law. In particular, we examine dynamic portfolio strategies with and without transaction costs in order to compare the forecasting power of discrete-time optimal allocations obtained under different stable Paretian distributional assumptions. We also consider a conditional extension of the stable Paretian approach and compare the model with others that consider different distributional assumptions. Finally, we empirically evaluate the forecasting power of the model for predicting the value at risk of a heavy-tailed return series.
KW - Dynamic portfolio strategies
KW - Multi-period portfolio choice
KW - Stable Paretian distributions
KW - Value at risk
UR - http://www.scopus.com/inward/record.url?scp=76849089488&partnerID=8YFLogxK
U2 - 10.1016/j.jempfin.2009.09.002
DO - 10.1016/j.jempfin.2009.09.002
M3 - Article
AN - SCOPUS:76849089488
VL - 17
SP - 195
EP - 211
JO - Journal of Empirical Finance
JF - Journal of Empirical Finance
SN - 0927-5398
IS - 2
ER -