Robust portfolio selection under Recovery Average Value at Risk
Portfolio Management
2023-03-03 v1 Mathematical Finance
Abstract
We study mean-risk optimal portfolio problems where risk is measured by Recovery Average Value at Risk, a prominent example in the class of recovery risk measures. We establish existence results in the situation where the joint distribution of portfolio assets is known as well as in the situation where it is uncertain and only assumed to belong to a set of mixtures of benchmark distributions (mixture uncertainty) or to a cloud around a benchmark distribution (box uncertainty). The comparison with the classical Average Value at Risk shows that portfolio selection under its recovery version enables financial institutions to exert better control on the recovery on liabilities while still allowing for tractable computations.
Keywords
Cite
@article{arxiv.2303.01167,
title = {Robust portfolio selection under Recovery Average Value at Risk},
author = {Cosimo Munari and Justin Plückebaum and Stefan Weber},
journal= {arXiv preprint arXiv:2303.01167},
year = {2023}
}