Cutting edge - Omega portfolio construction with Johnson distributions
The omega risk-adjusted performance measure with Johnson distributions accounts comprehensively and non-discretionarily for the first potentially persistent moments including skewness and kurtosis. The Johnson-omega ratio thus overcomes the shortcomings of other measures and is inherently less sensitive to input data noise and to changes of the threshold than empirical omega. Alexander Passow derives an explicit representation of the Johnson-omega ratio that was successfully tested in a hedge fund portfolio optimisation framework using both historical and forward-looking performances of individual indexes
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