Optimal Portfolio Strategy to Control Maximum Drawdown - The Case of Risk Based Dynamic Asset Allocation

2012 ◽  
Author(s):  
Z. George Yang ◽  
Liang Zhong
Keyword(s):  
Asset Allocation ◽  
Optimal Portfolio ◽  
Dynamic Asset Allocation ◽  
Portfolio Strategy ◽  
Maximum Drawdown

scholarly journals Optimal portfolio and spending rules for endowment funds

2019 ◽  
Vol 55 (2) ◽  
pp. 671-693
Author(s):  
Muhammad Kashif ◽  
Francesco Menoncin ◽  
Iqbal Owadally
Keyword(s):  
Numerical Analysis ◽  
Asset Allocation ◽  
Optimal Portfolio ◽  
Dynamic Asset Allocation ◽  
Optimal Portfolios ◽  
Allocation Model ◽  
Hybrid Strategy ◽  
Market Growth ◽  
Long Run

AbstractWe investigate the role of different spending rules in a dynamic asset allocation model for university endowment funds. In particular, we consider the fixed consumption-wealth ratio (CW) rule and the hybrid rule which smoothes spending over time. We derive the optimal portfolios under these two strategies and compare them with a theoretically optimal (Merton) strategy. We show that the optimal portfolio with habit is less risky compared to the optimal portfolio without habit. A calibrated numerical analysis on U.S. data shows, similarly, that the optimal portfolio under the hybrid strategy is less risky than the optimal portfolios under both the CW and the classical Merton strategies, in typical market conditions. Our numerical analysis also shows that spending under the hybrid strategy is less volatile than the other strategies. Thus, endowments following the hybrid spending rule use asset allocation to protect spending. However, in terms of the endowment’s wealth, the hybrid strategy comparatively outperforms the conventional Merton and CW strategies when the market is highly volatile but under-performs them when there is strong stock market growth and low volatility. Overall, the hybrid strategy is effective in terms of stability of spending and intergenerational equity because, even if it allows short-term fluctuation in spending, it ensures greater stability in the long run.

scholarly journals Optimal Portfolio Strategy under Rolling Economic Maximum Drawdown Constraints

2014 ◽  
Vol 2014 ◽  
pp. 1-11 ◽  
Author(s):  
Xiaojian Yu ◽  
Siyu Xie ◽  
Weijun Xu
Keyword(s):  
Optimal Portfolio ◽  
Risky Asset ◽  
Risky Assets ◽  
Portfolio Strategy ◽  
Comparison Research ◽  
Practical Strategy ◽  
Drawdown Constraint ◽  
Novel Strategy ◽  
The Given ◽  
Maximum Drawdown

This paper deals with the problem of optimal portfolio strategy under the constraints of rolling economic maximum drawdown. A more practical strategy is developed by using rolling Sharpe ratio in computing the allocation proportion in contrast to existing models. Besides, another novel strategy named “REDP strategy” is further proposed, which replaces the rolling economic drawdown of the portfolio with the rolling economic drawdown of the risky asset. The simulation tests prove thatREDP strategycan ensure the portfolio to satisfy the drawdown constraint and outperforms other strategies significantly. An empirical comparison research on the performances of different strategies is carried out by using the 23-year monthly data of SPTR, DJUBS, and 3-month T-bill. The investment cases of single risky asset and two risky assets are both studied in this paper. Empirical results indicate that theREDP strategysuccessfully controls the maximum drawdown within the given limit and performs best in both return and risk.

Dynamic Asset Allocation

1987 ◽  
Vol 1987 (1) ◽  
pp. 82-85, 93
Author(s):  
H. Gifford Fong
Keyword(s):  
Asset Allocation ◽  
Dynamic Asset Allocation

Dynamic Asset Allocation for Stocks, Bonds, and Cash

CFA Digest ◽  
2004 ◽  
Vol 34 (1) ◽  
pp. 69-70
Author(s):  
Brian A. Maris
Keyword(s):  
Asset Allocation ◽  
Dynamic Asset Allocation
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