# Panic-aware portfolio optimization

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## Abstract

This article provides a portfolio optimization approach that takes into account extreme events. By merging a (downside-only) panic copula with the empirical marginal distributions, panic-awareness is attained for the optimization process. This approach includes the likelihood of highly co-dependent asset movements in panic states of the market—as empirically observed during market crashes. Panic-awareness CVaR optimization translates into robust equity portfolios, empirically exemplified for the UK and German stock market.

## Keywords

Panic copula Portfolio optimization CVaR Expected shortfall Entropy pooling Panic markets## JEL Classification

G11 C1## Notes

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