How Best to Flip-Flop If You Must: Integer Dynamic Stochastic Programming for Either-Or.
Standard portfolio analysis presumes one can blend different securities continuously. When one must choose all of one portfolio or all of another, we are in stochastic digital programming: either-or, zero-or-one choice. The algorithm for doing this optimally is shown to be simpler than in real variable maximizing, a switch from the usual extra complexities of digital programming. The Bellman multi-period dynamic programming is shown, paradoxically, to make it possible for a risk-averse investor to want sometimes to embrace an unfair gamble. The superiority of within-time diversification over across-time diversification carries over to this flip-flop case. Copyright 1997 by Kluwer Academic Publishers
Year of publication: |
1997
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Authors: | Samuelson, Paul A |
Published in: |
Journal of Risk and Uncertainty. - Springer. - Vol. 15.1997, 3, p. 183-90
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Publisher: |
Springer |
Saved in:
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