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Risk- and ambiguity-averse portfolio optimization with quasiconcave utility functionals

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  • Sigrid Källblad

    (Technische Universität Wien)

Abstract

Motivated by recent axiomatic developments, we study the risk- and ambiguity-averse investment problem where trading takes place in continuous time over a fixed finite horizon and terminal payoffs are evaluated according to criteria defined in terms of quasiconcave utility functionals. We extend to the present setting certain existence and duality results established for so-called variational preferences by Schied (Finance Stoch. 11:107–129, 2007). The results are proved by building on existing results for the classical utility maximization problem, combined with a careful analysis of the involved quasiconvex and semicontinuous functions.

Suggested Citation

  • Sigrid Källblad, 2017. "Risk- and ambiguity-averse portfolio optimization with quasiconcave utility functionals," Finance and Stochastics, Springer, vol. 21(2), pages 397-425, April.
    • Handle: RePEc:spr:finsto:v:21:y:2017:i:2:d:10.1007_s00780-016-0318-y
    DOI: 10.1007/s00780-016-0318-y
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    More about this item

    Keywords

    Model uncertainty; Ambiguity aversion; Quasiconvex risk measures; Optimal investment; Robust portfolio selection; Duality theory;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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