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Technical report 08Risk & mandates

Haircut the yield, margin the ceiling

v2, First version Literature reviewArgument

Abstract

Orpheus+ had to answer five design questions for one mandate: the most yield the limits allow, at no more volatility than the Bloomberg US Aggregate. How should the volatility ceiling be defined so that it holds out of sample? How much history should the risk model remember? What yield should the optimiser maximise? How should a bad year be bounded? And can the duration guard of TR06 be improved? This note reviews what the published literature says about each question and ranks the candidate ideas before testing. TR07 then tested every candidate on the 36-fund menu. Five survived and became Orpheus+: the relative ceiling, the worst-of-three risk memory, the expected-loss haircut on yields, the linear worst-case floor and, unchanged, the TR06 guard. Thirteen did not, and TR07 §4.4 records each one. The title is the short form of the two ideas that mattered most: haircut the yield for expected loss before maximising it, and give the ceiling a definition that keeps a margin of safety built in.

Keywords literature review · volatility targeting · covariance estimation · drawdown control · time-series momentum · Kelly criterion

1Summary

TR07 also cites Hsieh (2026) [13] beside Grossman and Zhou for the cushion overlay, and the SEC Division of Investment Management’s ADI 2022-12 [21] for the inflation accrual in TIPS yields.

Restricted from here

The rest of this paper opens with an access code.

This note was written for one portfolio team and its firm’s risk reviewers, as the companion to Technical Report 07. The abstract and the summary are public and may be cited. The rest of the note, with its references, opens with the access code and the confidential materials terms the team was given.

Held 2. The ceiling · 3. The risk model · 4. The objective: haircut the yield · 5. The bad year: a worst-case floor · 6. The duration guard · 7. Turnover and costs · 8. Kelly, as a cross-check · 9. Ranking before testing, and what happened · 10. Gaps the literature leaves · References · Appendices

Cite as

ARCANE Research (2026). Haircut the yield, margin the ceiling. ARCANE Research Technical Report 08, v2, 19 October 2026. https://arcane.markets/research/orpheus-plus-literature

@techreport{arcane2026orpheusplus,
  title       = {Haircut the yield, margin the ceiling},
  author      = {{ARCANE Research}},
  institution = {ARCANE},
  type        = {Technical Report},
  number      = {08},
  year        = {2026},
  month       = oct,
  note        = {Version 2},
  url         = {https://arcane.markets/research/orpheus-plus-literature}
}
Haircut the yield, margin the ceiling — Research · ARCANE