Please use this identifier to cite or link to this item: https://doi.org/10.1287/mnsc.1070.0769
Title: Incorporating asymmetric distributional information in robust value-at-risk optimization
Authors: Natarajan, K. 
Pachamanova, D.
Sim, M. 
Keywords: Coherent risk measures
Robust optimization
Value-at-risk
Issue Date: 2008
Source: Natarajan, K., Pachamanova, D., Sim, M. (2008). Incorporating asymmetric distributional information in robust value-at-risk optimization. Management Science 54 (3) : 573-585. ScholarBank@NUS Repository. https://doi.org/10.1287/mnsc.1070.0769
Abstract: Value-at-Risk (VaR) is one of the most widely accepted risk measures in the financial and insurance industries, yet efficient optimization of VaR remains a very difficult problem. We propose a computationally tractable approximation method for minimizing the VaR of a portfolio based on robust optimization techniques. The method results in the optimization of a modified VaR measure, Asymmetry-Robust VaR (ARVaR), that takes into consideration asymmetries in the distributions of returns and is coherent, which makes it desirable from a financial theory perspective. We show that ARVaR approximates the Conditional VaR of the portfolio as well. Numerical experiments with simulated and real market data indicate that the proposed approach results in lower realized portfolio VaR, better efficient frontier, and lower maximum realized portfolio loss than alternative approaches for quantile-based portfolio risk minimization. © 2008 INFORMS.
Source Title: Management Science
URI: http://scholarbank.nus.edu.sg/handle/10635/44184
ISSN: 00251909
DOI: 10.1287/mnsc.1070.0769
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