Omega portfolio construction
The omega risk-adjusted performance measure with Johnson distributions accountscomprehensively and non-discretionarily for the first potentially persistent moments includingskewness and kurtosis. The Johnson-omega ratio thus overcomes the shortcomings of othermeasures and is inherently less sensitive to input data noise and to changes of the thresholdthan 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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