On Control of Drawdown: Robust Invariance and Optimality

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Highly relevant for practitioners and researchers focusing on risk-constrained portfolio management. It provides a rigorous theoretical foundation for 'cushion-based' strategies (like CPPI) and proves their optimality relative to LTI strategies under specific robustness conditions.

The theoretical framework is mathematically dense (support functions, set invariance). Implementing the optimal policy requires solving a one-dimensional Bellman recursion, which is computationally feasible but requires careful handling of the support set and normalized state space.

The paper provides detailed mathematical derivations, explicit formulas for the Bellman recursion, and specifies the data source (Yahoo Finance) and simulation parameters (horizons, costs, drawdown limits) for the numerical illustration. Code is not explicitly linked, but the methodology is fully described.