Dynamic optimal capital growth with risk constraints

In this paper, risk metrics in capital growth and drawdown as a financial risk measure were considered. Moreover, we developed a dynamic portfolio management model with constraints on the maximal drawdown. Exact optimization algorithms run into difficulties in this framework and this motivates the investigation of simulated annealing optimized algorithm to solve the problem of maximizing long term growth of simultaneous risky investment. Empirical research indicates that the approach is inspiring for this class of portfolio optimization problems.

► A new measure of optimal capital growth risk was considered. ► Dynamic portfolio model was developed with constraints. ► Simulated annealing algorithm was investigated to solve the problem. ► Performance and risk parameter based on real financial data were calculated. ► Improved effective portfolio frontier with drawdown constraints was drawn.