A new approach in non-parametric estimation of returns in mean-downside risk portfolio frontier
by Hanene Ben Salah; Ali Gannoun; Mathieu Ribatet
International Journal of Portfolio Analysis and Management (IJPAM), Vol. 2, No. 2, 2018

Abstract: The downside risk (DSR) model for portfolio optimisation allows to overcome the drawbacks of the classical mean-variance model concerning the asymmetry of returns and the risk perception of investors. This optimisation model deals with a positive definite matrix that is endogenous with respect to the portfolio weights and hence yields to a non-standard optimisation problem. In this paper we develop a new method and an algorithm to solve this optimisation problem which typically yields to a smoother portfolio frontier. Our proposal is based on non-parametric estimation, using kernel methods of mean and median. An application to the French and Brazilian stock markets is given.

Online publication date: Tue, 26-Jun-2018

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