Spectral risk measures and portfolio selection

Alexandre Adam (1) , Mohamed Houkari (1, 2) , Jean-Paul Laurent (1, 2)

1 Financial models, Group ALM
2 SAF - Laboratoire de Sciences Actuarielle et Financière

This paper deals with risk measurement and portfolio optimization under risk constraints. Firstly we give an overview of risk assessment from the viewpoint of risk theory, focusing on moment-based, distortion and spectral risk measures. We subsequently apply these ideas to an asset management framework using a database of hedge funds returns chosen for their non- Gaussian features. We deal with the problem of portfolio optimization under risk constraints and lead a comparative analysis of efficient portfolios. We show some robustness of optimal portfolios with respect to the choice of risk measure. Unsurprisingly, risk measures that emphasize large losses lead to slightly more diversified portfolios. However, risk measures that account primarily for worst case scenarios overweight funds with smaller tails which mitigates the relevance of diversification.

Mots clés: expected shortfall; distortion risk measures; spectral risk measures; hedge funds; portfolio selection

Domaines: Economies et finances

Alexandre Adam, Mohamed Houkari, Jean-Paul Laurent. Spectral risk measures and portfolio selection. 2007. ⟨hal-00165641⟩