An empirical comparison between robust estimation and robust optimization to mean-variance portfolio

Abstract

Mean-variance portfolios constructed using the sample mean and covariance matrix of asset returns perform poorly out-of-sample due to estimation error. Recently, there are two approaches designed to reduce the effect of estimation error: robust statistics and robust optimization. Two different robust portfolios were examined by assessing the outof-sample performance and the stability of optimal portfolio compositions. The performance of the proposed robust portfolios was compared to classical portfolios via expected return, risk, and Sharpe Ratio. The aim is to shed light on the debate concerning the importance of the estimation error and weights stability in the portfolio allocation problem, and the potential benefits coming from robust strategies in comparison to classical portfolios.

Analisis Klaster dalam Pembentukan Portofolio Robust Mean-Variance

“…Banyak literatur di bidang keuangan menyatakan bahwa distribusi return sering menyimpang dari asumsi normalitas karena ada sebagian data yang menyimpang (outlier) [9]- [11]. Penyimpangan data ini disebabkan karena data data keuangan sangat sensitif terhadap perubahan perubahan baik dari faktor internal maupun eksternal, seperti kejadian bencana alam, politik, dan perubahan ekonomi dunia.…”

Pengoptimuman Portofolio dengan Kendala Karakteristik Perusahaan Emiten

“…Model mean-variance telah digunakan secara luas, bahkan mengalami berbagai modifikasi atau penyempurnaan. Sebagai contoh, dalam (Supandi et al [5]) dibahas model mean-variance yang dimodifikasi dengan penambahan penduga robust dan penggunaan metode pengoptimuman robust. Dalam (Soleimani et al [6]), dibahas model mean variance dengan modifikasi lain berupa pembatasan lot transaksi, kardinalitas, dan kapitalisasi sektor.…”

Portfolio Optimization Model with and without Options under Additional Constraints

“…Zymler et al [49] developed a robust optimization model for designing portfolio including European options that trades off strong and weak guarantees on the worst-case portfolio return. Further important studies in the subject can be found in [50][51][52][53][54][55][56][57][58][59][60]. e goal of this paper is to analyze the MAD model with and without options when short selling, risk-neutral interest rate, and cardinality constraints are allowed.…”