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Optimal multivariate financial decision making

Author

Listed:
  • Bernard, C.
  • De Gennaro Aquino, L.
  • Vanduffel, S.

Abstract

Agents who pursue optimal portfolio choice by optimizing a univariate objective (e.g., an expected utility) obtain optimal payoffs that are increasing with each other (situation of no diversification). This situation may lead to an undesirable level of systemic risk for society. A regulator may consider a global perspective and aim to enforce diversification among the various portfolios by optimizing a suitable multivariate objective. We explain that optimal solutions satisfy a notion of multivariate cost-efficiency and provide an algorithm to obtain multivariate cost-efficient payoffs.

Suggested Citation

  • Bernard, C. & De Gennaro Aquino, L. & Vanduffel, S., 2023. "Optimal multivariate financial decision making," European Journal of Operational Research, Elsevier, vol. 307(1), pages 468-483.
    • Handle: RePEc:eee:ejores:v:307:y:2023:i:1:p:468-483
    DOI: 10.1016/j.ejor.2022.09.017
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