Decentralized Portfolio Management
AbstractWithin a mean-variance model we analyze the problem of decentralized portfolio management. We find the solution for the optimal portfolio allocation for a head trader operating in n different markets, which is called the optimal centralized portfolio. However, as there are many traders specialized in different markets, the solution to the problem of optimal decentralized allocation should be different from the centralized case. In this paper we derive conditions for the solutions to be equivalent. We use multivariate normal returns and a negative exponential function to solve the problem analytically. We generate the equivalence of solutions by assuming that different traders face different interest rates for borrowing and lending. This interest rate is dependent on the ratio of the degrees of risk aversion of the trader and the head trader, on the excess return, and on the correlation between asset returns.
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Bibliographic InfoPaper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 22.
Date of creation: Jun 2001
Date of revision:
Publication status: Published in Revista Brasileira de Finanças, Vol. 1, no. 2 (2003).
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Web page: http://www.bcb.gov.br/?english
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pedro H. Albuquerque, 2001.
"Os Impactos Econômicos da CPMF: Teoria e Evidência,"
Working Papers Series
21, Central Bank of Brazil, Research Department.
- Pedro H. Albuquerque, 2005. "Os Impactos Econômicos da CPMF: Teoria e Evidência," Public Economics 0511020, EconWPA, revised 26 Nov 2005.
- Pedro H. Albuquerque, 2001. "Os Impactos Econômicos da CPMF: Teoria e Evidência," Anais do XXIX Encontro Nacional de Economia [Proceedings of the 29th Brazilian Economics Meeting] 029, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
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