Stochastic Bounds for Reference Sets in Portfolio Analysis

Stelios Aravanitis, Gerrit Post, Nikolas Topaloglou

Research output: Contribution to journalArticlepeer-review

Abstract

A stochastic bound is a portfolio that stochastically dominates all alternatives in a reference portfolio set instead of a single alternative portfolio. An approximate bound is a portfolio that comes as close as possible to this ideal. To identify and analyze exact or approximate bounds, feasible approaches to numerical optimization and statistical inference are developed based on linear programming and subsampling. The use of reference sets and stochastic bounds is shown to improve investment performance in representative applications to enhanced benchmarking using equity industry rotation and equity index options combinations.
Original languageEnglish
Pages (from-to)1
Number of pages30
JournalManagement Science
Volume67
Issue number4
Publication statusPublished - Mar 10 2021

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