Sharpe ratio with CVaR for denominator and different investor utility functions
Sharpe ratio with CVaR for denominator and different investor utility functions
Loading saved threads...
Gcube · External communityPost link
External question — Quantitative Finance Stack Exchange
Author: Gcube
Original post: https://quant.stackexchange.com/questions/45281
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
I would like to model different type of investors, hence I need to find some kind of utility functions to optimize. Apart from very abstract exponential utility function, I couldn't find any proper one. Frankly speaking, I would like to find some kind of more realistic criteria rather than type of abstract utility function. For example, for risk-neutral investor I have two questions:
1)Is it possible to use Sharpe ratio? (Can it be named as a criterion for risk-neutral?)
2)Can I use CVaR/VaR in denominator of SR (instead of StdDev)? If no, why not? I think, this will better account for fat tails.
If there are papers on this topic (utility functions for different investing styles), I would really appreciate it!
Thank you in advance!
Quote
Report
David Nguyen · External communityPost link
External answer — Quantitative Finance Stack Exchange
Author: David Nguyen
Original post: https://quant.stackexchange.com/a/45286
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
For the first question: Let me ask you a question. Do the risk-neutral investor have a feeling of risk?
For the second question: Sharpe Ratio tries to capture the excess return over the risk free rate. But you need to adjust it with the risk associated with your portfolio. So it depends on the type of risk measure you employ.
Quote
Report
user24980 · External communityPost link
External answer — Quantitative Finance Stack Exchange
Author: user24980
Original post: https://quant.stackexchange.com/a/54182
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
SR and VaR are very different things.
The Sharpe ratio gives an idea of the performance of a given investment strategy, but it is nothing without looking at the corresponding drawdown.
VaR just gives limited information based on the volatility of a portfolio within a certain confidence interval.
Quote
Report
Post Reply
Quoted from Forex.com.bd-Editorial External question — Quantitative Finance Stack Exchange Author: Gcube Source score (net votes, not local likes): 5 Original post: https://quant.stackexchange.com/questions/45281 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I would like to model different type of investors, hence I need to find some kind of utility functions to optimize. Apart from very abstract exponential utility function, I couldn't find any proper one. Frankly speaking, I would like to find some kind of more realistic criteria rather than type of abstract utility function. For example, for risk-neutral investor I have two questions: 1)Is it possible to use Sharpe ratio? (Can it be named as a criterion for risk-neutral?) 2)Can I use CVaR/VaR in denominator of SR (instead of StdDev)? If no, why not? I think, this will better account for fat tails. If there are papers on this topic (utility functions for different investing styles), I would really appreciate it! Thank you in advance!
Checking account access…