Foster-Hart Optimal Portfolio
Subject Areas : Financial engineering
sepehr asefi
1
(M.Sc. Student, Department of Financial Systems, Faculty of Management, University of Tehran, Tehran, Iran)
reza eivazlu
2
(Assistant Prof., Department of Financial and Insurance Management, Faculty of Management, University of Tehran, Tehran, Iran)
reza tehrani
3
(Prof., Department of Financial and Insurance Management, Faculty of Management, University of Tehran, Tehran, Iran)
Keywords: Portfolio optimization, Foster-Hart Risk, Downside Rsk, Conditional Value-at-Risk,
Abstract :
This essay is going to optimize the portfolio of stocks similar to the Markowitz approach. Nonetheless, the way in which the risk is measured is Foster-Hart risk. This measure was proposed by Foster and Hart in 2009. It takes into account the extreme events of losses. The theoretical definition could be as a minimum wealth that an investor should have in order not to face with bankruptcy. Our sample consists of adjusted daily data from thirty-four companies chosen from Tehran Stock Exchange’s Top 50 Index in the period between 1391/07/01 and 1396/06/31. Data has been collected from Rahavard Novin software which is widely used in finance studies in Iran. Different optimal portfolios has been achieved in this essay. Each of which uses a different method of risk like Cvar and Semi-Variance besides Foster-Hart. Results of this essay show that Foster-Hart optimal portfolio could have higher sharp ratio in comparison with the others.
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