Risk averse fractional trading using the current drawdown
Stanislaus Maier-Paape
TL;DR
This paper revisits fractional trading strategies by incorporating current drawdowns into the risk measure, leading to more risk-averse optimal solutions compared to traditional methods.
Contribution
It introduces a modified goal function that accounts for current drawdowns, enhancing risk management in fractional trading for risk-averse investors.
Findings
Optimal fractions reflect risk aversion better
Incorporating drawdowns improves risk control
Enhanced strategies outperform traditional methods
Abstract
In this paper the fractional trading ansatz of money management is reconsidered with special attention to chance and risk parts in the goal function of the related optimization problem. By changing the goal function with due regards to other risk measures like current drawdowns, the optimal fraction solutions reflect the needs of risk averse investors better than the original optimal f solution of Ralph Vince. Keywords: fractional trading, optimal f, current drawdown, terminal wealth relative, risk aversion
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Taxonomy
TopicsRisk and Portfolio Optimization · Economic theories and models · Fuzzy Systems and Optimization