Enhancing Financial Portfolio Optimization: Integrating CVaR Constraints and Transaction Costs with Mean-Semivariance Analysis
Mots-clés :
Portfoltio, Optimization, Mean-semivariances, Transaction Cost, CVaR constraint.Résumé
The growing prevalence of portfolio investment in real-world scenarios has underscored the criticality of effectively managing tail risks. Consequently, contemporary research within the portfolio allocation domain is dedicated to refining models that consider various percentiles of potential losses. In this study, we propose a novel approach to mitigate downside risk by integrating Conditional Value at Risk (CVaR) as a constraint within the Mean-semivariance (MSV) model framework. We present a new mixed integer linear program designed to accommodate diverse transaction costs and incorporate the CVaR constraint. While this integration of CVaR enhances the realism of portfolio selection in alignment with investor preferences, it simultaneously imposes limitations on the range of feasible portfolios. Our methodology offers a nuanced balance between risk management and portfolio optimization, catering to the nuanced needs of investors amidst evolving market dynamics.
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