Foster-Hart Optimal Portfolio

Subject Areas : Financial engineering

sepehr asefi ¹ , reza eivazlu ² , reza tehrani ³

1 - M.Sc. Student, Department of Financial Systems, Faculty of Management, University of Tehran, Tehran, Iran
2 - Assistant Prof., Department of Financial and Insurance Management, Faculty of Management, University of Tehran, Tehran, Iran
3 - Prof., Department of Financial and Insurance Management, Faculty of Management, University of Tehran, Tehran, Iran

Received: 2018-11-30 Accepted : 2019-05-12 Published : 2019-06-22

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.