Long-term Investment Management with Minimax Regret: A Template for Pension Funds?

Abstract

A method of pension portfolio management with Minimax Regret with respect to the best hindsight constant-mix portfolio is presented. This is achieved via a BHCM derivative contract, where several approaches for pricing such a derivative are exhibited. A set of Empirical comparisons with more traditional approaches using data from Germany is presented. For the data examined, the resulting comparison demonstrates a clear superiority of the Minimax-based approach over the traditional from the point of view of both long-term cumulative performance and risk profile as measured chiefly by Drawdown.