Original scientific paper
https://doi.org/10.1080/1331677X.2023.2165525
Robust portfolio optimization: a stochastic evaluation of worst-case scenarios
Paulo Rotella Junior
Luiz Célio Souza Rocha
Rogério Santana Peruchi
Giancarlo Aquila
Edson de Oliveira Pamplona
Karel Janda
Arthur Leandro Guerra Pires
Abstract
This article presents a new approach for building robust portfolios
based on stochastic efficiency analysis, by using the Chance
Constrained Data Envelopment Analysis (CCDEA) model and periods
of market downturn, i.e. worst-state market. The model is able
to accommodate investors who exhibit different risk behaviors and
the empirical analysis is done on assets traded on the Brazil Stock
Exchange, B3 (Brasil, Bolsa, Balc~ao). The results confirm that the
proposed model achieved portfolios that at the same time reduced
systematic risk and maximized portfolio returns when working with
worse market state data and higher levels of risk aversion. A higher
level of risk aversion also led to better risk-return ratios, which can
be seen in higher Sharpe ratio values.
Keywords
Robust optimization; stochastic evaluation; chance constrained DEA; worst-case markets; portfolios
Hrčak ID:
314038
URI
Publication date:
17.5.2023.
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