Equilibrium with investors using a diversity of deviation measures |
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Authors: | R Tyrrell Rockafellar Stan Uryasev M Zabarankin |
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Institution: | 1. University of Washington, Department of Mathematics, Box 354350, Seattle, WA 98195-4350, United States;2. University of Florida, ISE Department, P.O. Box 116595, 303 Weil Hall, Gainesville, FL 32611-6595, United States;3. Department of Mathematical Sciences, Stevens Institute of Technology, Hoboken, NJ 07030, United States |
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Abstract: | It has been argued that investors who optimize their portfolios with attention paid only to mean and standard deviation will all end up choosing some multiple of a certain master fund portfolio. Justification for the capital asset pricing model of classical portfolio theory, which relates individual assets to such a master fund, has come from this direction in particular. Attempts have been made to provide solid mathematical support by showing that the imputed behavior of investors is a consequence of price equilibrium in a market in which assets are traded subject to budget constraints, and optimization is carried out with respect to utility functions that depend only on mean and standard deviation. |
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Keywords: | C62 C68 D58 G11 |
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