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

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/jmateco

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  1. 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.
  2. Cern›, Ales, 2002. "Generalized Sharpe Ratios and Asset Pricing in Incomplete Markets," Royal Economic Society Annual Conference 2002 41, Royal Economic Society.
  3. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini & Marco Taboga, 2004. "Portfolio Selection with Monotone Mean-Variance Preferences," ICER Working Papers - Applied Mathematics Series 27-2004, ICER - International Centre for Economic Research, revised Dec 2004.
  4. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2004. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Carlo Alberto Notebooks 12, Collegio Carlo Alberto, revised 2006.
  5. L. Randall Wray & Stephanie Bell, 2004. "Introduction," Chapters, in: Credit and State Theories of Money, chapter 1 Edward Elgar.
  6. Frittelli, Marco & Rosazza Gianin, Emanuela, 2002. "Putting order in risk measures," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1473-1486, July.
  7. Hans Föllmer & Alexander Schied, 2002. "Convex measures of risk and trading constraints," Finance and Stochastics, Springer, vol. 6(4), pages 429-447.
  8. Ales Čern� & Jan Kallsen, 2008. "Mean-Variance Hedging And Optimal Investment In Heston'S Model With Correlation," Mathematical Finance, Wiley Blackwell, vol. 18(3), pages 473-492.
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