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Pessimistic Portfolio Allocation and Choquet Expected Utility

  • Gilbert W. Bassett

Recent developments in the theory of choice under uncertainty and risk yield a pessimistic decision theory that replaces the classical expected utility criterion with a Choquet expectation that accentuates the likelihood of the least favorable outcomes. A parallel theory has recently emerged in the literature on risk assessment. It is shown that a general form of pessimistic portfolio optimization based on the Choquet approach may be formulated as a problem of linear quantile regression. Copyright 2004, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/jjfinec/nbh023
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Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

Volume (Year): 2 (2004)
Issue (Month): 4 ()
Pages: 477-492

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Handle: RePEc:oup:jfinec:v:2:y:2004:i:4:p:477-492
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  1. Oliver Linton & Yoon-Jae Whang, 2003. "A Quantilogram Approach to Evaluating Directional Predictability," STICERD - Econometrics Paper Series /2003/463, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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