Optimal portfolio positioning under ambiguity |
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Affiliation: | 1. INSEEC Business School, 27 rue claude vellefaux 75010 Paris, France;2. ThEMA, University of Cergy-Pontoise, 33 Bd du Port, 95011, Cergy-Pontoise, France |
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Abstract: | This paper analyzes the optimality of financial portfolios when the investor has a utility with ambiguity aversion. It provides a general result about the optimal portfolio profile under ambiguity, in the Anscombe–Aumann framework, using the Maccheroni et al. (2006) approach which includes Gilboa and Schmeidler's (1989) multiple prior preferences and Hansen and Sargent's (2011) multiplier preferences. The paper then details the CRRA case with an ambiguity index based on relative entropy. Such findings have practical applications in structured portfolio management. Indeed, it is important to take account of uncertainty about the true values of financial parameters when determining the best portfolio profile. |
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