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The convergence of set-valued scenario approach for downside risk minimization

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Abstract

Scenario approach is a widely used tool in portfolio risk management, however, it often runs into dilemma when determining the distribution of asset returns with insufficient information, which will be used to simulate the scenarios. Also the quality of generated scenarios are not guaranteed even when the distribution of asset returns is known exactly. A set-valued scenario approach was proposed by Zhu, et al. (2015) as a possible remedy. As a necessary supplement of the results proposed by Zhu, et al. (2015), this paper theoretically investigates the convergent property of the numerical solution based on the set-valued scenario approach under the condition that the underlying distribution is known.

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Authors and Affiliations

  1. Department of Economics, College of Business, Hebei Normal University, Shijiazhuang, 050024, China

    Xiaodong Ji

  2. Department of Finance and Investment, Sun Yat-Sen Business School, Sun Yat-Sen University, Guangzhou, 510275, China

    Shushang Zhu

Authors
  1. Xiaodong Ji
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  2. Shushang Zhu
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Corresponding author

Correspondence to Shushang Zhu.

Additional information

This research was partially supported by the National Natural Science Foundation of China under Grant Nos. 71471180, 61170107, 71571062, and the National Natural Science Foundation of Hebei Normal University under Grant No. L2011Z12.

This paper was recommended for publication by Editor ZHANG Xun.

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Ji, X., Zhu, S. The convergence of set-valued scenario approach for downside risk minimization. J Syst Sci Complex 29, 722–735 (2016). https://doi.org/10.1007/s11424-016-5028-1

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  • DOI: https://doi.org/10.1007/s11424-016-5028-1

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