Dynamic Allocation Strategies for Absolute and Relative Loss Control

Daniel Mantilla-García: The maximum drawdown control strategy dynamically allocates wealth between cash and a risky portfolio, keeping losses below a chosen pre-defined level.

Author(s):

Daniel Mantilla-Garcia

Research Associate, EDHEC-Risk InstituteHead of Research & Development, Koris International

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 formal proof that the loss-control objectives introduced can be insured using dynamic allocation is provided and the potential benefits and implementation aspects of the strategies are illustrated with examples.

Type: Working paper
Date: le 14/07/2014
Research Cluster : Finance

See Also

EDHEC career support at distance: continuous follow-up and a highly active network
News
- 05-06-2020
After fully digitalising its services, the EDHEC Student Career Centre has been...
How I got my dream internships
News
- 02-06-2020
I originally wanted to be a footballer. I daydreamed about training with the top...
« EDHEC, the best experience of my life so far »
News
- 29-05-2020
WHAT IS YOUR EDUCATIONAL BACKGROUND PRIOR TO EDHEC? Prior to EDHEC, I pursued a...
Meet Valentin Grinner, Pre-Master student
News
- 28-05-2020
Valentin Grinner “I’ve started a MOOC to learn web development” Valentin, 20, is...