Risk Preference and Indirect Utility in Portfolio Choice Problems PDF Download
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Author: Santanu Roy
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 32
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Book Description
Author: Santanu Roy
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 32
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Book Description
Author: Nicolas Chapados
Publisher: Springer Science & Business Media
ISBN: 1461405777
Category : Computers
Languages : en
Pages : 107
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Book Description
This brief offers a broad, yet concise, coverage of portfolio choice, containing both application-oriented and academic results, along with abundant pointers to the literature for further study. It cuts through many strands of the subject, presenting not only the classical results from financial economics but also approaches originating from information theory, machine learning and operations research. This compact treatment of the topic will be valuable to students entering the field, as well as practitioners looking for a broad coverage of the topic.
Author: Turan Bulmus
Publisher: LAP Lambert Academic Publishing
ISBN: 9783838350851
Category :
Languages : en
Pages : 72
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Book Description
In this study, I analyzed a single-period portfolio selection problem where the investor maximizes the expected utility of the terminal wealth. The utility function is exponential, but the Pratt-Arrow measure of absolute risk aversion or risk tolerance is random. This is due to the random variations in individual s decisions concerning stochastic choice. It is well- known that the investor is memoryless in wealth for exponential utility functions with a constant risk tolerance. In other words, the investment portfolio consisting of risky stocks does not depend on the level of wealth. However, it is shown that this is no longer true if risk tolerance is random. A number of interesting characterizations on the structure of the optimal policy are obtained
Author: Chang Mo Ahn
Publisher:
ISBN:
Category : Stocks
Languages : en
Pages : 456
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Book Description
Author: Donald D. Hester
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 200
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Author: Bernard Dumas
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
Author: Sigrid Linnea Kallblad
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Xiao Han
Publisher:
ISBN:
Category :
Languages : en
Pages : 400
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Book Description
The classical optimal investment models are cast in a finite or infinite horizon setting, assuming an a priori choice of a market model (or a family of models) as well as a priori choice of a utility function of terminal wealth and/or intermediate consumption. Once these choices are made, namely, the horizon, the model and the risk preferences, stochastic optimization technique yield the maximal expected utility (value function) and the optimal policies wither through the Hamilton-Jacobi-Bellman equation in Makovian models or, more generally, via duality in semi-martingale models. A fundamental property of the solution is time-consistency, which follows from the Dynamic Programming Principle (DPP). This principle provides the intuitively pleasing interpretation of the value function as the intermediate (indirect) utility. It also states that the value function is a martingale along the optimal wealth trajectory and a super-martingale along every admissible one. These properties provide a time-consistent framework of the solutions, which ``pastes" naturally one investment period to the next. Despite its mathematical sophistication, the classical expected utility framework cannot accommodate model revision, nor horizon flexibility nor adaptation of risk preferences, if one desires to retain time-consistency. Indeed, the classical formulation is by nature ``backwards" in time and, thus, it does not allow any "forward in time" changes. For example, on-line learning, which typically occurs in a non-anticipated way, cannot be implemented in the classical setting, simply because the latter evolves backwards while the former progresses forward in time. To alleviate some of these limitations while, at the same time, preserving the time-consistency property, Musiela and Zariphopoulou proposed an alternative criterion, the so-called forward performance process. This process satisfies the DPP forward in time, and generalizes the classical expected utility. For a large family of cases, forward performance processes have been explicitly constructed for general Ito-diffusion markets. While there has already been substantial mathematical work on this criterion, concrete applications to applied portfolio management are lacking. In this thesis, the aim is to focus on applied aspects of the forward performance approach and build meaningful connections with practical portfolio management. The following topics are being studied. Chapter 2 starts with providing an intuitive characterization of the underlying performance measure and the associated risk tolerance process, which are the most fundamental ingredients of the forward approach. It also provides a novel decomposition of the initial condition and, in turn, its inter-temporal preservation as the market evolves. The main steps involve a system of stochastic differential equations modeling various stochastic sensitivities and risk metrics. Chapter 3 focuses on the applications of the above results to lifecycle portfolio management. Investors are firstly classified by their individual risk preference generating measures and, in turn, mapped to different groups that are consistent with the popular practice of age-based de-leveraging. The inverse problem is also studied, namely, how to infer the individual investor-type measure from observed investment behavior. Chapter 4 provides applications of the forward performance to the classical problem of mean-variance analysis. It examines how sequential investment periods can be ``pasted together" in a time-consistent manner from one evaluation period to the next. This is done by mapping the mean-variance to a family of forward quadratic performances with appropriate stochastic and path-dependent coefficients. Quantitative comparisons with the classical approach are provided for a class of market settings, which demonstrate the superiority and flexibility of the forward approach.
Author: Trino Manuel Ñíguez
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
We derive the conditions for the optimal portfolio choice within a constant relative risk aversion type of utility function considering alternative probability distributions that are able to capture the asymmetric and leptokurtic features of asset returns. We illustrate the role -- beyond risk aversion -- played by higher-order moments in the optimal decision to form a portfolio of risky assets. In particular, we show that higher-order risk attitudes such as prudence and temperance associated with the third and fourth moments of the distribution define different optimal portfolios than those constrained under risk aversion.
Author: Christian Gollier
Publisher: MIT Press
ISBN: 9780262572248
Category : Business & Economics
Languages : en
Pages : 492
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Book Description
Updates and advances the theory of expected utility as applied to risk analysis and financial decision making.
