We propose a decomposition method for the solution of a dynamic portfolio optimization problem which fits the formulation of a multistage stochastic programming problem. The method allows to obtain time and nodal decomposition of the problem in its arborescent formulation applying a discrete...

In this paper we study the continuous time optimal portfolio selection problem for an investor with a finite horizon who maximizes expected utility of terminal wealth and faces transaction costs in the capital market. It is well known that, depending on a particular structure of transaction...

Markowitz’s (1952) portfolio theory has permeated financial institutions over the past 50 years. Assuming that returns are normally distributed, Markowitz suggests that portfolio optimization should be performed in a mean-variance framework. With the emergence of hedge funds and their...

We consider the forestry decision-making and harvesting problem from the perspective of financial portfolio management, where harvestable forest stands constitute one of the liquid assets of the portfolio. Using real data from Finnish mixed borealis forests and from the Helsinki stock exchange,...

We propose a novel portfolio selection approach that manages to ease some of the problems that characterise standard expected utility maximisation. The optimal portfolio is no longer defined as the extremum of a suitably chosen utility function: the latter, instead, is reinterpreted as the...

Many problems in modern financial economics involve the solution of continuous-time, continuous-state stochastic control problems. Since explicit solutions of such problems are extremely rare, efficient numerical methods are called for. The Markov chain approximation approach provides a class of...

In this paper we examine the problem of finding investors' reservation option prices and corresponding early exercise policies of American- style options in the market with proportional transaction costs using the utility based approach proposed by Davis and Zariphopoulou (1995). We present a...

Singer and Karnosky's (1995) exact and complete return attribution framework does not account for risk, since it ignores accumulated historical information. Its implied investment strategy selection is based on simple return maximization and ignores that investment strategies are correlated via...

In this paper we extend the utility based option pricing and hedging approach, pioneered by Hodges and Neuberger (1989) and further developed by Davis, Panas and Zariphopoulou (1993), for the market where each transaction has a fixed cost component. We present a model, where investors have a...