Optimizing Optimization: The Next Generation of Optimization Applications and Theory (Quantitative Finance)

166 Optimizing Optimization

Figure 7.6 shows one of five possible performance descriptions.
Notice the pattern of the risk – return framework. On the left, risk is mea-
sure as standard deviation. On the right, it is downside risk. In each case, it is
adjusted for a term we call the style beta (see Appendix).

Figure 7.5 Efficient frontier for the upside potential ratio.

DTR α Graphic representation

Upside

potential

α

α

α

8

4

Downside risk

12

Figure 7.6 Two views of performance measurement.