Discrete-Time CPPI Under Transaction Cost and Regime Switching

Weng, Chengguo

doi:10.2139/ssrn.2432233

Cited by 3 publications

(1 citation statement)

References 28 publications

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“…One of the most studied topics is the performance evaluation of active management, which probably represents the main element promoting a renewed interest in performance measurement. Among the most recent contributions, we can quote Cherny and Madan (2009), Capocci (2009), Darolles et al (2009), Jha et al (2009), Jiang and Zhu (2009), Stavetski (2009), Zakamouline and Koekebakker (2009), Darolles and Gouriéroux (2010), Glawischnig and Sommersguter-Reichmannn (2010), Billio et al (2012), Cremers et al (2013), Kapsos et al (2014), Weng (2014), Billio et al (2014) and Billio et al (2015).…”

Section: Introductionmentioning

confidence: 99%

“On the (Ab)use of Omega ?”

Caporin

Costola

Jannin

et al. 2018

Journal of Empirical Finance

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Several recent finance articles use the Omega measure (Keating and Shadwick, 2002), defined as a ratio of potential gains out of possible losses, for gauging the performance of funds or active strategies, in substitution of the traditional Sharpe ratio, with the arguments that return distributions are not Gaussian and volatility is not always the relevant risk metric. Other authors also use Omega for optimizing (non-linear) portfolios with important downside risk. However, we question in this article the relevance of such approaches. First, we show through a basic illustration that the Omega ratio is inconsistent with the Second-order Stochastic Dominance criterion. Furthermore, we observe that the trade-off between return and risk corresponding to the Omega measure, may be essentially influenced by the mean return. Next, we illustrate in static and dynamic frameworks that Omega-based optimal portfolios can be closely associated with classical optimization paradigms depending on the chosen threshold used in Omega. Finally, we present robustness checks on long-only asset and hedge fund databases, that confirm our results.

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