Robust portfolio optimization with a generalized expected utility model under ambiguity |
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Authors: | Xiaoxian Ma Qingzhen Zhao Jilin Qu |
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Institution: | (1) College of Management and Economics, Shandong Normal University, School of Finance and Banking, Shandong University of Finance, Jinan, 250014, China;(2) College of Management and Economics, Shandong Normal University, Jinan, 250014, China;(3) School of Accounting, Shandong University of Finance, Jinan, 250014, China |
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Abstract: | This paper proposes a robust approach maximizing worst-case utility when both the distributions underlying the uncertain vector
of returns are exactly unknown and the estimates of the structure of returns are unreliable. We introduce concave convex utility
function measuring the utility of investors under model uncertainty and uncertainty structure describing the moments of returns
and all possible distributions and show that the robust portfolio optimization problem corresponding to the uncertainty structure
can be reformulated as a parametric quadratic programming problem, enabling to obtain explicit formula solutions, an efficient
frontier and equilibrium price system.
We would like to thank Prof. Zengjing Chen from School of Mathematics and System Sciences, Shandong University for helpful
suggestions, and to thank the anonymous referee for valuable comments. |
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Keywords: | Robust optimization Portfolio selection Ambiguity Equilibrium |
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