BOUNDED STRATEGIES FOR MAXIMIZING THE SHARPE RATIO-Reference-Cited by-同舟云学术

BOUNDED STRATEGIES FOR MAXIMIZING THE SHARPE RATIO

Published:2023-02 Issue:01 Volume:26 Page:
ISSN:0219-0249
Container-title:International Journal of Theoretical and Applied Finance
language:en
Short-container-title:Int. J. Theor. Appl. Finan.

Author:

YE JIANG¹^ORCID,WANG YIWEI¹,RAZA MUHAMMAD WAJID²

Affiliation:

1. Department of Finance, School of Economics and Management, Southeast University, Nanjing 210096, P. R. China

2. Department of Management Sciences, Shaheed Benazir Bhutto University, Sheringal 18050, Pakistan

Abstract

Bernard et al. [(2019) Optimal strategies under omega ratio, European Journal of Operational Research 275 (2), 755–767] use convex ordering arguments to determine the bounded payoff for maximizing the omega ratio. However, it appears difficult to apply such reasoning to estimate the bounded payoff for maximizing the Sharpe ratio. As a proposed solution, this paper uses a Lagrange multiplier method to derive the bounded payoff for maximizing the Sharpe ratio. In contrast to the optimal strategy in Bernard & Vanduffel [(2014) Mean–variance optimal portfolios in the presence of a benchmark with applications to fraud detection, European Journal of Operational Research 234 (2), 469–480], the optimal strategy in this paper is bounded from below. It can protect investors from substantial losses when they invest in payoffs with a maximized Sharpe ratio.

Publisher

World Scientific Pub Co Pte Ltd

Subject

General Economics, Econometrics and Finance,Finance

Link

https://www.worldscientific.com/doi/pdf/10.1142/S0219024923500024

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