Optimal portfolio strategy under rolling economic drawdown constraints with lower semi-variance.

The maximum drawdown and the lower-semi-variance are risk indicators that investors concern about during the actual investment process. This paper combines this two indicators into analytical framework and proposes an optimal portfolio strategy under rolling economic drawdown constraints with lower-semi-variance (REDP-LSV strategy). Under the constraint of the rolling economic maximum drawdown of risky asset's prices, we have studied the dynamical allocation of the risky assets in the portfolio and derived a analytical solution by using the lower-semi-variance instead of the variance of risky asset. The investment cases of one risky asset and two risky asset are both studied in this paper. Using data from simulated experiment and real risky assets of Chinese stock market, it turns out that the REDP-LSV strategy is able to control the maximum drawdown and improve the performance of investment. [ABSTRACT FROM AUTHOR]