Robustness in a balanced multi-asset low risk portfolio - In collaboration with Tryg Invest

Specialeforsvar: Ahmad Emad Taleb Hashem

Titel: Robustness in a balanced multi-asset low risk portfolio - in collaboration with Tryg Invest

Abstract: This thesis briefly examines the negative-convex relation between a traditional balanced multi-asset low risk portfolio and equity performance, that partly stems from the illiquidity premia during market crashes and a low interest rate environment, and then formalizes and tests a possible solution to the issue by constructing a defensive portfolio with selected
strategies that is provided by six counterparties. Firstly the setup, types of strategies and constraints is reviewed together with an overview and definitions of the risk metrics that to be assessed, leading to the quantitative selection process and how the strategies are screened by their backtests. The relevant data is qualitatively analysed and prepared for the portfolio construction where three buckets containing defensive strategies, convex strategies and carry strategies is constructed by analysing the strategies’ performance and risk metrics both individually but also as an overlay to a balanced low risk portfolio. A subset of the
strategies within each bucket are combined using static weights or risk parity to create optimal buckets. These buckets are then weighted by a mean-variance optimization and combined to create the wanted defensive portfolio and produces a portfolio that reduces maximum drawdowns during market crashes and improves risk and return properties when the constructed portfolio is used as a 10% overlay to the traditional balanced multi-asset portfolio.

Vejleder: Rolf Poulsen
Censor:   Kim Christensen, Aarhus Universitet