Portfolio optimization for heavy-tailed assets: Extreme Risk Index vs. Markowitz

  title={Portfolio optimization for heavy-tailed assets: Extreme Risk Index vs. Markowitz},
  author={Georg Mainik and Georgi K. Mitov and Ludger Ruschendorf},
  journal={Journal of Empirical Finance},
  • Georg Mainik, Georgi K. Mitov, Ludger Ruschendorf
  • Published 2015
  • Economics
  • Journal of Empirical Finance
  • Using daily returns of the S&P 500 stocks from 2001 to 2011, we perform a backtesting study of the portfolio optimization strategy based on the Extreme Risk Index (ERI). This method uses multivariate extreme value theory to minimize the probability of large portfolio losses. With more than 400 stocks to choose from, our study seems to be the first application of extreme value techniques in portfolio management on a large scale. The primary aim of our investigation is the potential of ERI in… CONTINUE READING
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