Title: | Risk Management with Benchmarking |
Authors: | Basak, Suleyman Shapiro, Alex Tepla, Lucie |
Issue Date: | Oct-2001 |
Series/Report no.: | FIN-01-015 |
Abstract: | Portfolio theory must address the fact that in reality, portfolio managers are evaluated relative to a benchmark, and therefore adopt risk management practices to account for the benchmark performance. We capture this risk management consideration by allowing a prespecified shortfall from a target benchmark-linked return, consistent with growing interest in such practice. In a dynamic setting, we demonstrate how a risk averse portfolio manager optimally under- or overperforms a target benchmark under different economic conditions, depending on his attitude towards risk and choice of the benchmark. Investors can therefore achieve their desired gain/loss characteristics for funds under management through an appropriate combined choice of the benchmark and money manager. |
URI: | http://hdl.handle.net/2451/26542 |
Appears in Collections: | Finance Working Papers |
Files in This Item:
File | Description | Size | Format | |
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FIN-01-015.pdf | 603.98 kB | Adobe PDF | View/Open |
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