The risk conscious investor is defined as the maximizer of a conservative valuation or dynamically a nonlinear expectation. Both the static and dynamic problems are addressed using distortions of tail probabilities or distortions of tail measures. The multivariate static problem is solved in the...

We consider the problem of optimal investment in a risky asset, and in derivatives written on the price process of this asset, when the underlying asset price process is a pure jump Levy process. The duality approach of Karatzas and Shreve is used to derive the optimal consumption and investment...

We consider the problem of optimal investment in a risky asset, and in derivatives written on the price process of this asset, when the underlying asset price process is a pure jump Lévy process. The duality approach of Karatzas and Shreve is used to derive the optimal consumption and...

In general, individuals will be interested in consumption of goods with “original”prices denominated in various currencies. Traditional risk management is nominally orientedand typically neglects this differentiated consumption preferences of investors. We outline therelevance of a consumption...

We show analytically under quite general conditions that implied rates of return based on analysts' earnings forecasts are only a downward biased estimator for future expected one-period returns and therefore not suited for computing market risk premia. The extent of this bias is substantial as...

Several attempts have been made to reduce the impact of estimation errors on the optimal portfolio composition. On the one hand, improved estimators of the necessary moments have been developed and on the other hand, heuristic methods have been generated to enhance the portfolio performance, for...

The estimation of expected security returns is one of the major tasks for the practical implementation of the Markowitz portfolio optimization. Against this background, in 1992 Black and Litterman developed an approach based on (theoretically established) expected equili-brium returns which...

The most relevant practical impediment to an application of the Markowitz portfolio selection approach is the problem of estimating return moments, in particular return expectations. We analyze the consequences of using return estimates implied by analysts' dividend forecasts under the explicit...

We show that reaching for yield---a tendency to take more risk when the real interest rate declines while the risk premium remains constant---results from imposing a sustainable spending constraint on an otherwise standard infinitely lived investor with power utility. When the interest rate is...