Lies of Capital Lines

Ilinski, Kirill; Pokrovskiĭ, A. V.

doi:10.2139/ssrn.1532292

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Appendix B Concave Efficient Frontier1

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2017

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“…The latter risks lead to reduced returns because the leverage unwinds happen "at the worst times" or "at the least favourable terms". The concave shape and even downward sloping of the efficient frontier, due to stop-loss and overleveraging, were suggested before by (Illinski 2010).…”

Section: Appendix B Concave Efficient Frontiermentioning

confidence: 79%

Leverage and uncertainty

Turlakov¹

2017

JOIS

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Risk and uncertainty will always be a matter of experience, luck, skills, and modelling. Leverage is another concept, which is critical for the investor's decisions and results. Adaptive skills and quantitative probabilistic methods need to be used in successful management of risk, uncertainty and leverage. The author explores how uncertainty beyond risk determines consistent leverage in a simple model of the world with fat tails due to significant, not fully quantifiable and not too rare events. Among particular technical results, for the single asset fractional Kelly criterion is derived in the presence of the fat tails associated with subjective uncertainty. For the multi-asset portfolio, Kelly criterion provides an insightful perspective on Risk Parity strategies, which can be extended for the assets with fat tails.

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Section: Appendix B Concave Efficient Frontiermentioning

confidence: 79%

Leverage and uncertainty

Turlakov¹

2017

JOIS

View full text Add to dashboard Cite

show abstract

Lies of Capital Lines

Cited by 1 publication

References 26 publications

Leverage and uncertainty

Leverage and uncertainty

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