Title

Combinatorial nonlinear goal programming for ESG portfolio optimization and dynamic hedge management

Document Type

Article

Date of Original Version

1-1-2014

Abstract

Compared to their fundamentally weighted counterparts naively diversified investment portfolios that embrace environmental, sustainability and governance (ESG) factors are known to experience enhanced long-term investment performance. This paper introduces a combinatorial nonlinear multiple objective optimization model to diversify the short-term ESG portfolio. The expectation of long-term wealth creation from an ESG portfolio is also examined. This latter investment objective is explored by implementing a discrete period ESG portfolio re-balancing with attached dynamic hedging. Post simulation, we report comparatively higher Sharpe ratios and lower VaR metrics for the multiobjective and dynamically hedged ESG portfolio investment style.

Publication Title

Mathematical and Statistical Methods for Actuarial Sciences and Finance

Share

COinS