Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103800
Authors: 
Härdle, Wolfgang Karl
Nasekin, Sergey
Lee, David Kuo Chuen
Fai, Phoon Kok
Year of Publication: 
2014
Series/Report no.: 
SFB 649 Discussion Paper 2014-032
Abstract: 
Portfolio selection and risk management are very actively studied topics in quantitative finance and applied statistics. They are closely related to the dependency structure of portfolio assets or risk factors. The correlation structure across assets and opposite tail movements are essential to the asset allocation problem, since they determine the level of risk in a position. Correlation alone is not informative on the distributional details of the assets. By introducing TEDAS -Tail Event Driven ASset allocation, one studies the dependence between assets at different quantiles. In a hedging exercise, TEDAS uses adaptive Lasso based quantile regression in order to determine an active set of negative non-zero coefficients. Based on these active risk factors, an adjustment for intertemporal correlation is made. Finally, the asset allocation weights are determined via a Cornish-Fisher Value-at-Risk optimization. TEDAS is studied in simulation and a practical utility-based example using hedge fund indices.
Subjects: 
Portfolio optimization
asset allocation
adaptive lasso
quantile regression
value-at-risk
JEL: 
C00
C14
C50
C58
Document Type: 
Working Paper

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