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The classification of parametric choices under uncertainty: analysis of the portfolio choice problem

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  • Sergio Ortobelli Lozza
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    Abstract

    This paper describes the admissible classes of parametric distribution functions of return portfolios and analyzes their consistency with the maximization of the expected utility. In particular, we present a general theory and a unifying framework with the following aims: (1) studying the implications of the classical market restrictions on the portfolio distributions; (2) establishing general rules of ordering, when the uncertain prospect depends by a finite number of parameters; (3) understanding how a dispersion measure has to be used, in order to obtain the investors' optimal portfolios. Copyright Kluwer Academic Publishers 2001

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    File URL: http://hdl.handle.net/10.1023/A:1015511211848
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    Bibliographic Info

    Article provided by Springer in its journal Theory and Decision.

    Volume (Year): 51 (2001)
    Issue (Month): 2 (December)
    Pages: 297-328

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    Handle: RePEc:kap:theord:v:51:y:2001:i:2:p:297-328

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    Web page: http://www.springerlink.com/link.asp?id=100341

    Related research

    Keywords: Dispersion measures; Market restrictions; Parameterized returns; Portfolio theory;

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    1. Chamberlain, Gary, 1983. "A characterization of the distributions that imply mean--Variance utility functions," Journal of Economic Theory, Elsevier, vol. 29(1), pages 185-201, February.
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    4. Kraus, Alan & Litzenberger, Robert H, 1976. "Skewness Preference and the Valuation of Risk Assets," Journal of Finance, American Finance Association, vol. 31(4), pages 1085-1100, September.
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    7. Ortobelli, Sergio & Rachev, Svetlozar & Schwartz, Eduardo, 2000. "The Problem of Optimal Asset Allocation with Stable Distributed Returns," University of California at Los Angeles, Anderson Graduate School of Management qt3zd6q86c, Anderson Graduate School of Management, UCLA.
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    13. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    14. Hiroshi Konno & Hiroaki Yamazaki, 1991. "Mean-Absolute Deviation Portfolio Optimization Model and Its Applications to Tokyo Stock Market," Management Science, INFORMS, vol. 37(5), pages 519-531, May.
    15. Samuelson, Paul A, 1970. "The Fundamental Approximation Theorem of Portfolio Analysis in terms of Means, Variances, and Higher Moments," Review of Economic Studies, Wiley Blackwell, vol. 37(4), pages 537-42, October.
    16. Haim Levy, 1992. "Stochastic Dominance and Expected Utility: Survey and Analysis," Management Science, INFORMS, vol. 38(4), pages 555-593, April.
    17. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
    18. Yusif Simaan, 1993. "Portfolio Selection and Asset Pricing---Three-Parameter Framework," Management Science, INFORMS, vol. 39(5), pages 568-577, May.
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    Cited by:
    1. Zhang, Wei-Guo & Xiao, Wei-Lin & Xu, Wei-Jun, 2010. "A possibilistic portfolio adjusting model with new added assets," Economic Modelling, Elsevier, vol. 27(1), pages 208-213, January.

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