Experiments with robust asset allocation strategies: classical versus relaxed robustness

Recchia, Raffaella and Scutellà, Maria Grazia (2010) Experiments with robust asset allocation strategies: classical versus relaxed robustness. Technical Report del Dipartimento di Informatica . Università di Pisa, Pisa, IT.

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Abstract

Aim of this paper is to compare alternative forms of robustness in the context of portfolio asset allocation. Starting with the concept of convex risk measures, a new family of models, called models, is firstly proposed where not only the values of the uncertainty parameters, but also their degree of feasibility are specified. This relaxed form of robustness is obtained by exploiting the link between convex risk measures and classical robustness. Then, we test some norm-portfolio models, as well as various robust strategies from the literature, with real market data on three different data sets. The objective of the computational study is to compare alternative forms of relaxed robustness - the relaxed robustness characterizing the norm portfolio models, the so-called soft robustness and the CVaR robustness. In addition, the models above are compared to a more classical robust model from the literature, in order to experiment similarities and dissimilarities between robust models based on convex risk measures and more traditional robust approaches. To the best of our knowledge, this is the first attempt at comparing robust strategies of different kinds in the framework of portfolio asset allocation.

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