Structured portfolio analysis under SharpeOmega ratio

Rania Hentati (1) , Jean-Luc Prigent (2)

1 CES - Centre d'économie de la Sorbonne
2 THEMA - Théorie économique, modélisation et applications

This paper deals with performance measurement of financial structured products. For this purpose, we introduce the SharpeOmega ratio, based on put as downside risk measure. This allows to take account of the asymmetry of the return probability distribution. We provide general results about the optimization of some standard structured portfolios with respect to the SharpeOmega ratio. We determine in particular the optimal combination of risk free, stock and call/put instruments with respect to this performance measure. We show that, contrary to Sharpe ratio maximization (Goetzmann et al., 2002), the payoff of the optimal structured portfolio is not necessarily increasing and concave. We also discuss about the interest of the asset management industry to reward high Sharpe Omega ratios.

Keywords: SharpeOmega ratio; Structured portfolio; Performance measure; SharpeOmega ratio.

Domains: Quantitative Finance [q-fin]; Portfolio Management [q-fin.PM]

Rania Hentati, Jean-Luc Prigent. Structured portfolio analysis under SharpeOmega ratio. 2012. ⟨hal-00657327⟩