Research and publications
Dynamic Allocation Strategies for Absolute and Relative Loss Control
The maximum drawdown control strategy dynamically allocates wealth between cash and a risky portfolio, keeping losses below a chosen pre-defined level. This paper introduces variations of the strategy, namely the excess drawdown and the relative drawdown control strategies. The excess drawdown control is a more flexible strategy that can cope with common (re)allocation restrictions such as lock-up periods, cash bans or liquidity constraints through an implementation with a hedging overlay. The relative drawdown control strategy is adapted to contexts in which investors seek to limit benchmark underperformance instead of absolute losses. A revisited version of this paper was published in the 3:3-4 2014 issue of Algorithmic Finance.
Author(s):
Daniel Mantilla-Garcia
Summary:
The maximum drawdown control strategy dynamically allocates wealth between cash and a risky portfolio, keeping losses below a chosen pre-defined level. This paper introduces variations of the strategy, namely the excess drawdown and the relative drawdown control strategies. The excess drawdown control is a more flexible strategy that can cope with common (re)allocation restrictions such as lock-up periods, cash bans or liquidity constraints through an implementation with a hedging overlay. The relative drawdown control strategy is adapted to contexts in which investors seek to limit benchmark underperformance instead of absolute losses. A revisited version of this paper was published in the 3:3-4 2014 issue of Algorithmic Finance.
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Register/Log in| Type : | Working paper |
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| Date : | 14/07/2014 |
| Keywords : |
Risk Management |
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