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We introduce the notion of a convex measure of risk, an extension of the concept of a coherent risk measure defined in Artzner et al. (1999), and we prove a corresponding extension of the representation theorem in terms of probability measures on the underlying space of scenarios. As a case...
Persistent link: https://www.econbiz.de/10005613387
A popular argument states that most of the diversification in a portfolio can be obtained with a rather small number of securities. In this paper we present three algorithms to approach the underlying NP-hard problem of portfolio optimization with a cardinality constraint. All three of these...
Persistent link: https://www.econbiz.de/10005537757
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...
Persistent link: https://www.econbiz.de/10005413052
This paper constructs an alternative investment strategy to portfolio optimization model in the framework of the Mean–Variance portfolio selection model. To differentiate it from the ubiquitously applied Mean–Variance model, which is constructed on an assumption that returns are normally...
Persistent link: https://www.econbiz.de/10011259339
uncertainty in predicting the future return distributions. By employing the duality theory, we show that the robust portfolio …
Persistent link: https://www.econbiz.de/10011077505
This paper proposes a new way to measure and deal with risk within the portfolio selection problem using a skewness/semivariance biobjective optimization framework. The solutions of this biobjective optimization problem allow the investor to analyse the efficient trade-off between skewness and...
Persistent link: https://www.econbiz.de/10011206302
The Cumulative Prospect Theory (CPT) is one of the most popular theories for evaluating the behavior of decision makers … in the context of risk and uncertainty. This theory emerged as a generalization of the Expected Utility Theory (EUT) and … being a relatively recent theory, its application has been somewhat reduced, especially when linked to optimization models …
Persistent link: https://www.econbiz.de/10010892272
We solve a mean-variance optimisation problem of a defined contribution pension scheme in the accumulation phase. The financial market consists of: (i) the risk-free asset, (ii) a risky asset following a GBM, and (iii) a bond driven by a stochastic interest rate following the Vasicek [1977]...
Persistent link: https://www.econbiz.de/10010862060
Should an investor unwind his portfolio in the face of changing economic conditions? We study an investor's optimal trading strategy with finite horizon and transaction costs in an economy that switches stochastically between two market conditions. We fully characterize the investor's time...
Persistent link: https://www.econbiz.de/10011051988
This paper investigates the uncertainty about the trading costs associated with a given portfolio strategy. I derive accurate approximations of the ex ante probability distributions of proportional trading costs and portfolio turnover under the conventional assumption of normal asset returns....
Persistent link: https://www.econbiz.de/10010939530