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

Presentation :

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.
Pdf
Dynamic Allocation Strategies for Absolute and Relative Loss Control...
(2.05 MB)
Type : Working paper
Date : le 14/07/2014
Extra information : For more information, please contact EDHEC Research and Development Department [ research@drd.edhec.edu ]
Research Cluster : Finance

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