Related papers: Omega and Sharpe ratio
We prove that the Omega measure, which considers all moments when assessing portfolio performance, is equivalent to the widely used Sharpe ratio under jointly elliptic distributions of returns. Portfolio optimization of the Sharpe ratio is…
The Sharpe ratio is a way to compare the excess returns (over the risk free asset) of portfolios for each unit of volatility that is generated by a portfolio. In this paper we introduce a robust Sharpe ratio portfolio under the assumption…
Sharpe ratio (sometimes also referred to as information ratio) is widely used in asset management to compare and benchmark funds and asset managers. It computes the ratio of the (excess) net return over the strategy standard deviation.…
In the present paper, using a replica analysis, we examine the portfolio optimization problem handled in previous work and discuss the minimization of investment risk under constraints of budget and expected return for the case that the…
We discuss - in what is intended to be a pedagogical fashion - generalized "mean-to-risk" ratios for portfolio optimization. The Sharpe ratio is only one example of such generalized "mean-to-risk" ratios. Another example is what we term the…
Traditional risk-adjusted returns, such as the Treynor, Sharpe, Sortino, and Information ratios, have been pivotal in portfolio asset allocation, focusing on minimizing risk while maximizing profit. Nevertheless, these metrics often fail to…
Average forecast accuracy is not the same as forecast reliability. I treat forecast loss differentials relative to a benchmark as a return series. I then evaluate these returns using risk-adjusted performance measures from finance,…
A simple example shows that losing all money is compatible with a very high Sharpe ratio (as computed after losing all money). However, the only way that the Sharpe ratio can be high while losing money is that there is a period in which all…
This paper proves equivalences of portfolio optimization problems with negative expectile and omega ratio. We derive subgradients for the negative expectile as a function of the portfolio from a known dual representation of expectile and…
In this paper we present an asset allocation strategy based on the maximization of the Sortino ratio. Unlike the Sharpe ratio, the Sortino ratio penalizes negative return variances only. The resulting allocation is valid for any time…
Returns distributions are heavy-tailed across asset classes. In this note, I examine the implications of this well-known stylized fact for the joint statistics of performance (absolute return) and Sharpe ratio (risk-adjusted return). Using…
Sharpe ratio is widely used in asset management to compare and benchmark funds and asset managers. It computes the ratio of the excess return over the strategy standard deviation. However, the elements to compute the Sharpe ratio, namely,…
The Sharpe ratio, which is defined as the ratio of the excess expected return of an investment to its standard deviation, has been widely cited in the financial literature by researchers and practitioners. However, very little attention has…
In an incomplete market, including liquidly-traded European options in an investment portfolio could potentially improve the expected terminal utility for a risk-averse investor. However, unlike the Sharpe ratio, which provides a concise…
This paper explores option portfolio optimization when the underlying returns are skew-elliptical t-distributed. We use the variance and value at risk (VaR) to measure portfolio risk. The novelty of our work is the departure from the…
This paper studies a variable proportion portfolio insurance (VPPI) strategy. The objective is to determine the risk multiplier by maximizing the extended Omega ratio of the investor's cushion, using a binary stochastic benchmark. When the…
The gain-loss ratio is known to enjoy very good properties from a normative point of view. As a confirmation, we show that the best market gain-loss ratio in the presence of a random endowment is an acceptability index and we provide its…
The Sharpe ratio is an important and widely-used risk-adjusted return in financial engineering. In modern portfolio management, one may require an m-sparse (no more than m active assets) portfolio to save managerial and financial costs.…
Given the return series for a set of instruments, a \emph{trading strategy} is a switching function that transfers wealth from one instrument to another at specified times. We present efficient algorithms for constructing (ex-post) trading…
Portfolio optimization in real-world financial markets is notoriously difficult due to non-stationarity, noisy data, and high transaction costs. Standard predict-then-optimize methods first forecast returns and then solve for weights,…