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Panic-aware portfolio optimization

  • Josef ZornEmail author
Original Article
  • 4 Downloads

Abstract

This article provides a portfolio optimization approach that takes into account extreme events. By merging a (downside-only) panic copula with the empirical marginal distributions, panic-awareness is attained for the optimization process. This approach includes the likelihood of highly co-dependent asset movements in panic states of the market—as empirically observed during market crashes. Panic-awareness CVaR optimization translates into robust equity portfolios, empirically exemplified for the UK and German stock market.

Keywords

Panic copula Portfolio optimization CVaR Expected shortfall Entropy pooling Panic markets 

JEL Classification

G11 C1 

Notes

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Copyright information

© Springer Nature Limited 2019

Authors and Affiliations

  1. 1.InnsbruckAustria

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