Dresden 2011 – scientific programme
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SOE: Fachverband Physik sozio-ökonomischer Systeme
SOE 18: Financial Markets and Risk Management I
SOE 18.10: Talk
Thursday, March 17, 2011, 12:45–13:00, GÖR 226
LPM method for portfolio optimization: theory and praxis — •Uli Spreitzer1 and Vladimir Reznik2 — 1Bonus Pensionskassen AG, Traungasse 14-16, 1030 Vienna, Austria — 2Towers Watson Deutschland GmbH, Abraham-Lincoln-Str. 22, 65189 Wiesbaden, Germany
The well known discussion on what is the most reasonable measure of risk (e.g. not VaR, Artzner [1]) many fund companies (or Pensionskasse in Austria) still use the variance based optimisation strategies. As we suggested, other measures as e.g. lower partial moments LPM may be much more suitable. Most because this measure covers the economic risk much better. Some time ago a fund suitable for pension funds uses this LPM method with excellent results during the financial crisis 2008 - 2010. We will explain, why this method is so successful
[1] P. Artzner, F. Delbaen, J.M. Eber, and D. Heath, Coherent measures of risk. Mathematical Finance, 9: 203ff,1999.
[2] MAARK funds of West LB Mellon
[3] U.W. Spreitzer and V. Reznik, On the optimization of a CAPM portfolio using lower partial moments as measure of risk and using the possibility of safeguarding its loss, Physica A: 378, 2, 423ff, 2007