1

Part I Advanced Portfolio Management

0 Introductory remarks
1 The historic profile of equity & bond returns
2 Expected Returns
3 Portfolio Risk
4 Downside risk measurement
5 Risk, return, and diversification
6 Expected Utility
7 Individual Risk Aversion
8 Risk, return, and Asset Allocation
Risk Aversion Profiling

Jun 6, 2024
Risk Aversion
 Expected Utility Theory
 (Relative) Risk Aversion
 Aversion to regret

 Behavioral Finance
 LOSS AVERSION

 Abs(Downward slope) ~ 2*Upward slope

 Regulatory aspects
 Article 25 of the MiFID II states:
 2. When providing investment advice or portfolio management the investment
firm shall obtain the necessary information regarding the client’s or potential
client’s knowledge and experience in the investment field relevant to the specific
type of product or service, that person’s financial situation including his ability
to bear losses, and his investment objectives including his risk tolerance so as to
enable the investment firm to recommend to the client or potential client the
investment services and financial instruments that are suitable for him and, in
particular, are in accordance with his risk tolerance and ability to bear losses.
 In the United States, FINRA Rule 2111 states:
 A customer’s investment profile includes, but is not limited to, the customer’s
age, other investments, financial situation and needs, tax status, investment
objectives, investment experience, investment time horizon, liquidity needs, risk
tolerance, and any other information the customer may disclose to the member
or associated person in connection with such recommendation.
 Individual Risk Aversion appears in both regulations, without
specifying a measurement tool, practical methods to measure risk
aversion or its impact on the choice of appropriate investments.
 Asset Allocation and Individual Risk Aversion

Asset Allocation decision-making still is one of the least

understood areas in Finance.
Portfolio theory assumes that investors are rational and
utility maximizing individuals who exhibit differing
degrees of relative risk aversion.

Previous approach : laboratory test on form of

VNM-Utility Functions
Examine an
individual’s
Hypothetical results indicate what actual pattern
people say how they allocate of asset allocation

5
An introductory experiment …

W0 10.000 yield Prob W0 10.000 yield Prob

-25% 16,67% -40% 16,67%
R 7,50% 5% 33,33% R 10,00% 10% 33,33%
sigma 16,77% 15% 33,33% sigma 24,62% 20% 33,33%
VAR 0,028125 30% 16,67% VAR 0,060625 40% 16,67%

CE AV CE AV
EU 5,39% 2,0% 1,96 EU 5,45% 2,0% 1,32
AV 0,75 2,5% 1,78 AV 0,75 2,5% 1,24
3,0% 1,60 3,0% 1,15
3,5% 1,42 3,5% 1,07
4,0% 1,24 4,0% 0,99
4,5% 1,07 4,5% 0,91
5,0% 0,89 5,0% 0,82
5,39% 0,75 5,45% 0,75
6,0% 0,53 6,0% 0,67
6,5% 0,36 6,5% 0,59
7,0% 0,18 7,0% 0,50
7,5% 0,00 7,5% 0,42
 An introductory experiment …

W0 10.000 yield Prob W0 10.000 yield Prob

-25% 16,67% -40% 16,67%
R 7,50% 5% 33,33% R 10,00% 10% 33,33%
sigma 16,77% 15% 33,33% sigma 24,62% 20% 33,33%
VAR 0,028125 30% 16,67% VAR 0,060625 40% 16,67%

CE AV CE AV
EU 5,39% 2,0% 1,96 EU 5,45% 2,0% 1,32
AV 0,75 2,5% 1,78 AV 0,75 2,5% 1,24
3,0% 1,60 3,0% 1,15
3,5% 1,42 3,5% 1,07
4,0% 1,24 4,0% 0,99
4,5% 1,07 4,5% 0,91
5,0% 0,89 5,0% 0,82
5,39% 0,75 5,45% 0,75
6,0% 0,53 6,0% 0,67
6,5% 0,36 6,5% 0,59
7,0% 0,18 7,0% 0,50
7,5% 0,00 7,5% 0,42
Diversification_Book1
 Risico-aversie
Expected Utility
 Asset Allocation and Individual Risk Aversion

RRAI = ( 1- Risky Assets / Wealth ) = ( 1- MPR / 2RRA )

Eu  α.w.R M  (1  α)w.R f  ARA.α².w².σ²

Eu
 w.R M  w.R f  2α.w².ARA.σ2  0
α
w(R M  R f ) w.Θ Θ
α  2
 2

2ARA.w².σ 2ARA.w².σ 2ARA.w.σ 2
Θ
Define ARA.w  RRA and MPR 
σ²
MPR Θ MPR
 2
  α
RRA 2RRAσ 2RRA
9
 Asset Allocation and Individual Risk Aversion

Risk aversion coefficient :

“The marginal rate at which an investor is willing to sacrifice

expected return in order to lower risk by one unit.”

 Some patterns
 Equity + with Income+, Wealth+ , Education +
 Bonds - with Income+, Wealth+ , Education +
 Real Estate : No clear Pattern
 Gender / Race / Geographical location: No clear pattern
 Age ?

10
 Risk Aversion Index and Demographics

98

97

96

95

94

93

92

91
<21 21-34 35-44 45-54 55-64 >64 AGE
AGE
11 Jun 6, 2024
 Risk Aversion Index and Education

Correlated with wealth & income /difference in equity holding

better understanding or more offerings / own company?

98

97
Education
Education
96

95

94

93

92

91

90

89
<HS HS COL DEG POST

12 Jun 6, 2024
13 Jun 6, 2024
 Risk Aversion Index and Income

Ability/willingness to take more risk

100

98

96 Income
Little
Flexibility
measuring 94
RRAI not
possible
92

90

88

86
<5000 5 to 10 10 to 15 15 to 20 20 to 25 25 to 35 35 to 50 >50.000

14 Jun 6, 2024
 Risk Aversion Index and Wealth

100
Wealth
95

90

85

80

75
<10,000 25 to 50 100 to 200 to >500,000
150 250

15
 Asset Allocation and Individual Risk Aversion

 Model explaining RRA-behaviour

 AGE / INCOME / WEALTH / EDUCATION
 Special considerations :
 AGE 65+ / Income < 10,000 / High Levels of
WEALTH
 Implies introduction of DUMMY-variables
 Gender/Race/Geographical location
 differences linked to wealth/education/income

16 Jun 6, 2024
 Asset Allocation and Individual Risk Aversion

EX ANTE - -
Education
-
Wealth -
Income
EXPECTATIONS AGE

RRAI    b1 X 1  b2 X 2  b3 X 3  b4 X 4 
 b5 D1  b6 D2  b7 D3  

0 if < 65
- -
+
0 if < $178,419
0 if < $10,989
1 if >65 1 if > $178,419
1 if > $10,989

17 Riley & Chow Asset allocation and Individual Risk Aversion 1992
 Asset Allocation and Individual Risk Aversion

COEFF t-value

AGE X1 -0.063101 > 95%

EDU X2 -0.246672 > 95%
WEALTH X3 -0.000006 > 95%
INCOME X4 -0.000055 > 95%
d age D1 0.905725 > 95%
d income D2 -0.536022 > 95%
d wealth D3 -1.134623 > 95%

18 Riley & Chow Asset allocation and Individual Risk Aversion 1992
 individual risk aversion

Clusters of solutions centered

round 4 profiles

very def
very dyn
def
dyn

19 Jun 6, 2024
Different AV leads to a different Portfolio combination

Efficient Set
Expected
Return

r
E( m)
M

rf

sm s
20
 score 0 2 3 4
I II III IV
weight
Net Income 0-10,000 10-30,000 30-75000 >75000
25% 0 1 0 0

Financial Wealth < 15,000 15-70,000 70-150,000 >150,000

25% 0 0 0 1

Education < sec sec /HNE HE / UNE UE

20% 0 0 0 1

Age < 25 or > 62 y 25-35 year 35-45 en 58-62 year 45-58 year
20% 0 0 1 0

Experience None Limited sufficient Very experienced

10% 0 0 0 1

21
 Risk Aversion and Asset Allocation

7 Individual Risk Aversion

7 1 Risk aversion profiling
7 2 Some Patterns in risk aversion
7 3 Some conclusion on risk aversion and portfolio optimization
7 4 Further anecdotical documentation on risk aversion
7 5 The impact of risk aversion on the optimized portfolio
7 5 1 Comments on the calibration of risk aversion
7 5 2 Calculation of the optimized portfolio
7 5 3 Impact of correlation (revisited)
7 6 Coherent Asset Allocation
7 6 1 Introducing a framework including Skewness
7 6 2 Calibration of the prudence factor k
7 6 3 Some illustrations on skewness in the stock markets
7 6 4 Optimized AA including Skewness
7 7 Appendix: Currency risk
 Further anecdotical documentation on
individual risk aversion Appendix

 Sung & Hanna (1996) :

 Education, race, gender, and self employment
 Shum & Faig (2005) :
 Wealth, age, and retirement savings, …
 Venti & Wise (2000)
 Differences in End Wealth
 Cronqvist & Siegel (2011) :
 The origins of savings behavior
 Some additional (puzzling) remarks on Gender
differences
 Texts “The economist” see 1415_SSPM_05_AversionTXT
 Jaimie SUNG and Sherman HANNA
Factors related to Risk Tolerance Financial Counseling and Planning Volume 7 1996

Appendix
Some further anecdotical documentation …

24 Jun 6, 2024
 Appendix

25 Jun 6, 2024
Education : increase, even controlling for other variables
 Appendix

26 Jun 6, 2024
 Appendix

Risk Tolerance lower for female headed household

27 Jun 6, 2024
 Appendix

28 Jun 6, 2024
Some further anecdotical documentation on
individual risk aversion Appendix

 Sung & Hanna (1996) :

 Education, race, gender, and self employment
 Shum & Faig (2005) :
 Wealth, age, and retirement savings, …
 Venti & Wise (2000)
 Differences in End Wealth
 Cronqvist & Siegel (2011) :
 The origins of savings behavior
 Some additional (puzzling) remarks on Gender
differences
 Text “The economist” see 1415_SSPM_05_AversionTXT
 Appendix

30 Jun 6, 2024
 Appendix

31 Jun 6, 2024
 What explains differences in endwealth ?
Venti & Wise (2000) Chance? Income? AA ? Genes ?
Total variation in savings 90%

Genes environment
70%

50%
Common Individual
30%
specific
10%

32 Jun 6, 2024
 Differences in Retirement Savings?
Choice, Chance, and Wealth Dispersion at Retirement
Steven F. Venti and David A. Wise NBER Working Paper No. 7521 February 2000
“People earn just enough to get by” is a phrase often used to explain the low personal saving rate
in the US. The implicit presumption is that households simply do not earn enough to pay for
current “needs” and to save. We show in this paper that at all levels of lifetime earnings there is
an enormous dispersion in the accumulated wealth of families approaching retirement. It is not
only households with low incomes that save little; a significant proportion of high income
households also saves little. And, a substantial proportion of low income households save a great
deal. We then consider the extent to which differences in household lifetime financial resources
explain the wide dispersion in wealth, given lifetime earnings. We find that very little of this
dispersion is explained by chance differences in individual circumstances – “largely outside the
control of individuals” – that might limit the resources from which saving might plausibly be
made. We also consider how much of the dispersion in wealth might be accounted for by
different investment choices of savers (…) given lifetime earnings. We find that investment
choice is not a major determinant of the dispersion in asset accumulation. (…). We conclude
that the bulk of the dispersion must be attributed to differences to in the amount that
households choose to save. The differences in saving choices among households with similar
lifetime earnings lead to vastly different levels of asset accumulation by the time retirement age
approaches.
Further anecdotical documentation on individual
risk aversion

 Sung & Hanna (1996) :

 Education, race, gender, and self employment
 Shum & Faig (2005) :
 Wealth, age, and retirement savings, …
 Venti & Wise (2000)
 Differences in End Wealth
 Cronqvist & Siegel (2011) :
 The origins of savings behavior
 Some additional (puzzling) remarks on Gender
differences
 Texts “The economist” see 1415_SSPM_05_AversionTXT
35 Jun 6, 2024
 Genetic differences ?
 (…) more and more evidence is accumulating about the central role of genetics in determining
preferences. Empirical studies have shown that the asset allocation of identical twins are much
more correlated than those of twins who are not identical. Furthermore, the asset allocations of
identical twins who were raised apart are also highly correlated
 Barnea, Cronqvist, & Siegel, 2010 Nature or nurture: What determines investor behavior? Journal of
Financial economics
 Using data on identical and fraternal twins’ complete financial portfolios, we decompose the
cross-sectional variation in investor behavior. We find that a genetic factor explains about 1/3
of the variance in stock market participation and asset allocation.
 Family environment has an effect on the behavior of young individuals,but this effect is not
long-lasting and disappears as an individual gains experience.(…)
 Twins who grew up in different environments still display similar investment behavior. Our
interpretation of a genetic component of the decision to invest in the stock market is that there
are innate differences in factors affecting effective stock market participation (…).
 We attribute the genetic component of asset allocation (…) to genetic variation in risk preferences

 (…) one may view CRRA preferences as a proxy for an underlying evolutionary goal of
maximizing (in an evolutionary sense).

 An evolutionary explanation for risk aversion Moshe Levin Journal of Economic Psychology Volume 46
, February 2015
 Differences in
Net Worth/Disposable income

1/3 genetic
1/2 “parenting” (max)

37 Jun 6, 2024
 “parenting” has no lifelong impact

38 Jun 6, 2024
 The origins of savings behavior
(cfr the Marshmellow
Experiment W. Mischel 1972 )

“innate time preferences and

lack of self control”

39 Jun 6, 2024
Some Further anecdotical documentation on individual risk
aversion

 Sung & Hanna (1996) :

 Education, race, gender, and self employment
 Shum & Faig (2005) :
 Wealth, age, and retirement savings, …
 Venti & Wise (2000)
 Differences in End Wealth
 Cronqvist & Siegel (2011) :
 The origins of savings behavior
 Some additional (puzzling) remarks on Gender
differences
 Texts “The Economist” see 1617_APM_07_TXT
 Risk Aversion & Gender ?
Appendix
41

 Puzzling and confusing …

 US : single women are more Risk Averse than single men and married
couples
 But DRRA, although less effect than with single men and married couples
 SW : single women more risk averse both in financial as consumer decision
taking …
 US Never married women are less risk averse than married women and less risk
averse than widowed or separated women
 Less wealth accumulation & longer longevity ?
 Black single women are LESS risk averse than white single women and
LESS risk averse than black single men or black married couples
 Spanish students exhibit less risk aversion than Americans …
 Women have better results as hedge fund managers than men …
 …?
 We’ll further explore the “prudence factor”

 See texts on risk aversion from The Economist on Toledo

 The impact of Risk Aversion on the Optimized Portfolio

42

Socio-economic factors

Calibration?
?

Eu ~ Er - AV* s²+ …
Some additional
Definitions on
ARA , RRA & a° Genetic factors
(savings behavior and expected end wealth)
 Comments on the calibration of Risk Aversion
43

Eu  .ER  (1  α)Rf  AV * σ² * ²
Eu
 ER  Rf  2 AV * σ² *   0

ER  Rf
 
2 AV * σ²

Banks offer 4 to 5 risk profiles

with an explicit long term AA in equity

Given σ  22% and ER  R f  2,7%

Table
we can calculate an implicit AV : V def def dyn V dyn
AA 20% 25% 45% 65%

AV 1,42 1,13 0,62 0,43

 Table : Changing Asset Allocation
a
1 2 3 4 5 6 7 opbrengs
Er sigma CE av active asset hedge 1+
bij m = rf bij m = 5%

0,1 0,25 -0,013 1,80 15% 86% 98%

0,1 0,25 -0,007 1,72 16% 85% 98%
0,1 0,25 -0,001 1,62 17% 85% 98%
0,1 0,25 0,005 1,52 18% 84% 98%
V Def 0,1 0,25 0,011 1,42 20% 82% 98%
0,1 0,25 0,017 1,33 21% 81% 98%
0,1 0,25 0,023 1,23 23% 80% 98%
def 0,1 0,25 0,029 1,13 25% 78% 98%
0,1 0,25 0,036 1,03 27% 76% 97%
0,1 0,25 0,042 0,93 30% 73% 97%
0,1 0,25 0,048 0,83 34% 70% 97%
0,1 0,25 0,054 0,73 38% 66% 96%
dyn 0,1 0,25 0,061 0,62 45% 60% 96%
0,1 0,25 0,068 0,52 54% 52% 95%
V Dyn 0,1 0,25 0,073 0,43 65% 42% 94%
0,1 0,25 0,075 0,40 70% 37% 93%
0,1 0,25 0,078 0,36 77% 31% 92%

44 06/06/2024
 Changing Asset Allocatie (s = 22%)

140

130 % in risky asset

120

110
100 Very Dyn
90
80

70 Dyn
60
50
Def
40
30

20 Very Def
10

45 Required Risk premium

 volatility

0.22 0.25 0.30

0.42 0.62 1.13 1.42 0.42 0.62 1.13 1.42 0.42 0.62 1.13 1.42
rp
0.50 12 8 5 4 10 6 4 3 7 4 2 2
0.70 17 12 6 5 13 9 5 4 9 6 3 3
0.90 22 15 8 7 17 12 6 5 12 8 4 4
1.10 27 18 10 8 21 14 8 6 15 10 5 4
1.30 32 22 12 9 25 17 9 7 17 12 6 5
1.50 37 25 14 11 29 19 11 8 20 13 7 6
1.70 42 28 16 12 32 22 12 10 22 15 8 7
1.90 47 32 17 14 36 25 13 11 25 17 9 7
2.10 52 35 19 15 40 27 15 12 28 19 10 8
2.30 57 38 21 17 44 30 16 13 30 21 11 9
2.50 61 42 23 18 48 32 18 14 33 22 12 10
2.70 65 45 25 20 51 35 19 15 36 24 13 11
2.80 69 47 26 20 53 36 20 16 37 25 14 11
3.00 74 50 27 22 57 39 21 17 40 27 15 12
3.20 79 53 29 23 61 41 23 18 42 29 16 13
3.40 84 57 31 25 65 44 24 19 45 30 17 13
3.60 89 60 33 26 69 46 25 20 48 32 18 14
3.70 91 62 34 27 70 48 26 21 49 33 18 14
3.90 96 65 36 28 74 50 28 22 52 35 19 15
4.10 101 68 37 30 78 53 29 23 54 37 20 16
4.30 106 72 39 31 82 55 30 24 57 39 21 17
4.50 111 75 41 33 86 58 32 25 60 40 22 18
4.70 116 78 43 34 90 61 33 26 62 42 23 18
4.90 121 82 45 36 93 63 35 28 65 44 24 19
5.10 125 85 47 37 97 66 36 29 67 46 25 20
5.30 130 88 48 39 101 68 38 30 70 47 26 21
5.50 135 92 50 40 105 71 39 31 73 49 27 22
46 5.60 138 93 51 41 107 72 40 32 74 50 28 22
 Table

Optimal AA s = 25%
V dyn dyn def V def
0,42 0,62 1,13 1,42

1,50% 29% 19% 11% 8%

1,75% 33% 23% 12% 10%
2,00% 38% 26% 14% 11%
2,25% 43% 29% 16% 13%
2,50% 48% 32% 18% 14%
2,75% 52% 35% 19% 15%
3,00% 57% 39% 21% 17%
3,25% 62% 42% 23% 18%
3,50% 67% 45% 25% 20%
3,75% 71% 48% 27% 21%
4,00% 76% 52% 28% 23%
4,25% 81% 55% 30% 24%
4,50% 86% 58% 32% 25%
4,75% 90% 61% 34% 27%
5,00% 95% 65% 35% 28%
5,25% 100% 68% 37% 30%
5,50% 105% 71% 39% 31%

s = 25%

47 06/06/2024
 115
110
105 AA s = 25%
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5 Required Risk premium
0

48 06/06/2024
Risk Aversion and Asset Allocation

 J.P. Morgan famously remarked, when asked what the

stock market would do, that “it will fluctuate.”
 It was a safe prediction...

 This fluctuation or volatility is modeled by probability

distributions

 The expected variance (or standard deviation) of such

a distribution is compensated by the required risk
premium
 Required Risk Premium
50
14 14
In troebel water is
het goed vissen …
12 12

10 10

8 8
6%

6 6

4 4

2 2
3.38%

0 0

-2 -2
00 02 04 06 08 10 12 14 16 18 20 22
Expected risk premium USA Expected Risk Premium Eurozone
6 jun 2024
Recession Recession
Source: Refinitiv Datastream
 Calculation of the optimized portfolio
51

Eu  .ER  (1  α)Rf  AV * σ² * ²
Eu
2D  ER  Rf  2AV * σ² *  
  0

ER  Rf

 
2AV * σ²
AV a  min 100 

ER R f
2AV * σ²
)

mu 7,0% 0,40 100%

sigma 21,0% 0,60 85%

0,80 64%

1,00 51%

1,20 43%

rf 2,5% 1,40 36% 06/06/2024

 Impact of Correlation:
Optimizing over Bonds, Cash, and Equity
52

Aversion 0,8 Aversion 0,8 Aversion 0,8

ER s ER s ER s
EQUITY 7,25% 21% EQUITY 7,25% 21% EQUITY 7,25% 21%
BONDS 3,50% 11% BONDS 3,50% 11% BONDS 3,50% 11%
CASH 2,50% 0 CASH 2,50% 0 CASH 2,50% 0

cor(E,B) 0,40 cor(E,B) 0,20 cor(E,B) -0,20

W1 W2 W3 W1 W2 W3 W1 W2 W3

67,3% 0,3% 32,4% 64,5% 27,0% 8,5% 61,4% 38,6% 0,0%

ERP 5,7% ERP 5,8% ERP 5,8%

s 14,1% s 14,4% s 12,7%

EU 4,1% EU 4,2% EU 4,5%

 Coherent Asset Allocation
53

Socio-economic factors

Calibration?
?

Eu ~ Er - AV* s²+ …
Some additional
Definitions on
ARA , RRA & a° Genetic factors
(savings behavior and expected end wealth)
 Skewness ?

 The need for an adjustment for the (expected)

skewness of the probabilty distributions of returns

 Large (downward) movement occur (much) more

frequently than can be expected from a normal
distribution
 Coherent AA:
Introducing a Framework including Skewness
55

u ' ' 2 u ''' 3

EU  Er  σ  κ  ...
2 6
'' '' '
u u
set κ ³  Sσ 3  -AV k
2 6
Standardized Skewness S κ³/σ³

EU  Er - AV  ²  kS ³

 is invested in the market portfolio with mean R M and variance σ 2M

(1 -  ) is invested in the risk free portfolio at rate R F

EU  αR M  (1  α )R F  AV  2 σ 2M  k 3Sσ 3M
 Coherent AA:
Introducing a Framework including Skewness
56

Eu   .R M  (1   )R f  AV σ  ²   ³kSσ 2 3

  invested in risky asset

AV  relative risk aversion

 k  preference for skewness "Prudence factor"

S  Standardized skewness

06/06/2024
Art. Eisenhauer

u''' / *u''
 The (implied) Skewness index
Implied Skewness
180 180

170 170

160 160

150 150

140 140

130 130

120 120

110 110
CBOESKEW = 100 – S*10
100 100
2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
CBOE SKEW INDEX Average of CBOE SKEW INDEX
Source: Refinitiv Datastream
 The (implied) Skewness index
Implied Skewness
180 180

170 170

160 160

150 150

140 140

130 130

120 120

110 110

2021 2022 2023

CBOE SKEW INDEX
Source: Refinitiv Datastream
 Standardized (implied) Skewness
(100-CBOSKEW)/10
60
0 0

-1 -1

-2 -2

-3 -3

-4 -4

-2.6
-5 -5

CBOESKEW - 100 = - S*10

-6 -6
(100 –CBOESKEW)/10 = S
-7 -7

6/24/2021
-8 -8
2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
6 jun 2024
100-CBOE SKEW INDEX/10 Average of (100-CBOE SKEW INDEX/10)
S Duchateau Source: Refinitiv Datastream
 Raw (implied) Skewness
x 1,000 ((100-CBOSKEW)/10)*POW#(CBOEVIX,3) x 1,000

0 0

-200 -200

-400 -400

-600 -600

-800 -800

-1000 -1000
2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
100-CBOE SKEW INDEX/10*3 power of CBOE SPX VOLATILITY VIX (NEW)
Source: Refinitiv Datastream
 Raw (implied) Skewness
x 1 000 ((100-CBOSKEW)/10)*POW#(CBOEVIX,3) x 1 000
0 0

-50 -50

-100 -100

-150 -150

-200 -200
2021 2022 2023
100-CBOE SKEW INDEX/10*3 power of CBOE SPX VOLATILITY VIX (NEW)
Source: Refinitiv Datastream
 Optimized AA including Skewness
63

u"'=-3u" u"'=-1,5u" u"'=-4u" u"'=-5u"

2D 3D 3D 3D 3D

New
AV a a a a a
mu 7,0% 0,40 100% 79% 93% 72% 68%

sigma 21,0% 0,60 85% 58% 67% 54% 51%

skew -2,3% 0,80 64% 47% 53% 44% 41%

st skew -2,50 1,00 51% 39% 44% 37% 35%

1,20 43% 34% 36% 32% 30%

rf 2,5% 1,40 36% 30% 31% 28% 27%

 Optimized AA including Skewness
64

u"'=-3u" u"'=-1,5u" u"'=-4u" u"'=-5u"

2D 3D 3D 3D 3D

AV a a a a a
mu 7,0% 0,40 100% 90% 100% 84% 79%

sigma 21,0% 0,60 85% 65% 73% 61% 58%

skew -1,4% 0,80 64% 51% 56% 49% 47%

st skew -1,50 1,00 51% 42% 46% 41% 39%

1,20 43% 36% 38% 35% 34%

rf 2,5% 1,40 36% 32% 33% 31% 30%

 Optimized AA including Skewness
65

u"'=-3u" u"'=-1,5u" u"'=-4u" u"'=-5u"

2D 3D 3D 3D 3D

AV a a a a a

mu 7,0% 0,40 100% 71% 86% 65% 60%

sigma 21,0% 0,60 85% 53% 63% 49% 46%

skew -3,2% 0,80 64% 43% 50% 40% 38%

st skew -3,50 1,00 51% 36% 42% 34% 32%

1,20 43% 32% 34% 30% 28%

rf 2,5% 1,40 36% 28% 30% 26% 25%

 Optimized AA including Skewness
66

u"'=-3u" u"'=-1,5u" u"'=-4u" u"'=-5u"

2D 3D 3D 3D 3D

AV a a a a a

mu 7,0% 0,40 90% 53% 64% 49% 45%

sigma 25,0% 0,60 60% 40% 46% 37% 34%

skew -5,5% 0,80 45% 32% 36% 30% 28%

st skew -3,50 1,00 36% 27% 30% 25% 24%

1,20 30% 23% 25% 22% 21%

rf 2,5% 1,40 26% 20% 22% 19% 18%