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Ambiguity in portfolio selection

Author

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  • Georg Pflug
  • David Wozabal

Abstract

In this paper, we consider the problem of finding optimal portfolios in cases when the underlying probability model is not perfectly known. For the sake of robustness, a maximin approach is applied which uses a 'confidence set' for the probability distribution. The approach shows the tradeoff between return, risk and robustness in view of the model ambiguity. As a consequence, a monetary value of information in the model can be determined.

Suggested Citation

  • Georg Pflug & David Wozabal, 2007. "Ambiguity in portfolio selection," Quantitative Finance, Taylor & Francis Journals, vol. 7(4), pages 435-442.
    • Handle: RePEc:taf:quantf:v:7:y:2007:i:4:p:435-442
    DOI: 10.1080/14697680701455410
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