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On the computation of optimal monotone mean–variance portfolios via truncated quadratic utility

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  • Černý, Aleš
  • Maccheroni, Fabio
  • Marinacci, Massimo
  • Rustichini, Aldo

Abstract

We report a surprising link between optimal portfolios generated by a special type of variational preferences called divergence preferences (see Maccheroni et al., 2006) and optimal portfolios generated by classical expected utility. As a special case, we connect optimization of truncated quadratic utility (see Černý, 2003) to the optimal monotone mean–variance portfolios (see Maccheroni et al., 2009), thus simplifying the computation of the latter.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 48 (2012)
Issue (Month): 6 ()
Pages: 386-395

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Handle: RePEc:eee:mateco:v:48:y:2012:i:6:p:386-395

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Web page: http://www.elsevier.com/locate/jmateco

Related research

Keywords: Optimal portfolio; Truncated quadratic utility; Monotone mean–variance preferences; Divergence preferences; HARA utility; Monotone hull; Translation-invariant hull;

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References

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  1. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini & Marco Taboga, 2008. "Portfolio Selection with Monotone Mean-Variance Preferences," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 664, Bank of Italy, Economic Research and International Relations Area.
  2. Ales Čern� & Jan Kallsen, 2008. "Mean-Variance Hedging And Optimal Investment In Heston'S Model With Correlation," Mathematical Finance, Wiley Blackwell, Wiley Blackwell, vol. 18(3), pages 473-492.
  3. Frittelli, Marco & Rosazza Gianin, Emanuela, 2002. "Putting order in risk measures," Journal of Banking & Finance, Elsevier, Elsevier, vol. 26(7), pages 1473-1486, July.
  4. Filipovic, Damir & Kupper, Michael, 2007. "Monotone and cash-invariant convex functions and hulls," Insurance: Mathematics and Economics, Elsevier, vol. 41(1), pages 1-16, July.
  5. Hans Föllmer & Alexander Schied, 2002. "Convex measures of risk and trading constraints," Finance and Stochastics, Springer, Springer, vol. 6(4), pages 429-447.
  6. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2004. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Carlo Alberto Notebooks, Collegio Carlo Alberto 12, Collegio Carlo Alberto, revised 2006.
  7. Cern›, Ales, 2002. "Generalized Sharpe Ratios and Asset Pricing in Incomplete Markets," Royal Economic Society Annual Conference 2002, Royal Economic Society 41, Royal Economic Society.
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Cited by:
  1. Samuel Drapeau & Michael Kupper & Antonis Papapantoleon, 2012. "A Fourier Approach to the Computation of CV@R and Optimized Certainty Equivalents," Papers 1212.6732, arXiv.org, revised Dec 2013.
  2. Éric André, 2014. "Crisp Fair Gambles," AMSE Working Papers, Aix-Marseille School of Economics, Marseille, France 1410, Aix-Marseille School of Economics, Marseille, France, revised 15 Mar 2014.

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