MAX DRAWDOWN DURATION MATLAB PDF

Though since you're trying to estimate a tail event, it would probably require a huge amount of simulated data and take a long long time to run. I would think that would give you more robust results. So to get optimal portfolio weights, you'd have to simulate some very large number of returns from each of these distributions, and then calculate (let's say) the 99th percentile portfolio draw-down for each set of portfolio weights, and use that function in your optimization. Why does any of it matter Well while many people check out.

But the DJCS Max Drawdown Duration is not 22 months, it is 28 months occurring between the 05/11 peak and today. As far as I know, none of those distributions have both finite variance and are closed under linear combinations, so your portfolio returns wouldn't have the same distribution. Take the DJCS MF index as an example the 17.74 Max DD had a peak in 03/95, valley in 11/95, and new peak in 02/97 for a drawdown duration of 22 months. Or, if you wanted to get fancy, you could use all your historical data to fit your favorite fat-tailed distribution. Instead, you might just include terms in your optimization objective that penalize negative skew and penalize positive kurtosis. Why? Because minimizing historical draw-down is effectively the same as taking all your returns that weren't part of a draw-down, and hiding them from your optimizer, which, as Tal mentioned, will lead to portfolio weights that are a lot less accurately estimated than if you let your optimizer see all the data you have. Third, (and here's the main point) if returns are very non-normal and you really do want to find portfolio weights that minimize expected draw-downs, you still wouldn't choose weights that minimize historical draw-down.

MAX DRAWDOWN DURATION MATLAB PDF

Minimizing variance is the same as minimizing expected draw-downs. Request PDF The maximum drawdown of the Brownian motion The MDD is defined as the maximum loss incurred from peak to bottom during a specified period of time. Second, if you really do care about draw-downs, if returns are close to normally distributed, the distribution of draw-downs is just a function of the variance, so there's no need to include draw-downs explicitly in your portfolio construction objective. First, and simplest, is that people care about variance.

Max drawdown duration matlab