Substantial losses suffered by several multi-billion dollar fixed income hedge funds have brought attention to risks involved in what was advertised as a leveraged municipal bond arbitrage strategy. The purported arbitrage strategy involved trades of municipal bonds, short-term notes, and...

We propose a robust portfolio optimization approach based on Value-at-Risk (VaR) adjusted Sharpe ratios. Traditional Sharpe ratio estimates based on limited historical return data are subject to estimation errors. Portfolio optimization based on traditional Sharpe ratios ignores this uncertainty...