Portal de Periódicos da CAPES

Portfolio selection with limited downside risk

2000; Elsevier BV; Volume: 7; Issue: 3-4 Linguagem: Inglês

10.1016/s0927-5398(00)00016-5

1879-1727

Dennis W. Jansen, Kees Koedijk, Casper G. de Vries,

Monetary Policy and Economic Impact

A safety-first investor maximizes expected return subject to a downside risk constraint. Arzac and Bawa [Arzac, E.R., Bawa, V.S., 1977. Portfolio choice and equilibrium in capital markets with safety-first investors. Journal of Financial Economics 4, 277–288.] use the Value at Risk as the downside risk measure. The paper by Gourieroux, Laurent and Scaillet estimates the optimal safety-first portfolio by a kernel-based method, we exploit the fact that returns are fat-tailed, and propose a semi-parametric method for modeling tail events. We also analyze a portfolio containing the two stocks used by Gourieroux et al. and discuss the merits of the safety-first approach.