Optimal portfolio selection and compression in an incomplete market
We investigate an optimal investment problem with a general performance criterion which, in particular, includes discontinuous functions. Prices are modeled as diffusions and the market is incomplete. We find an explicit solution for the case of limited diversification of the portfolio, i.e. for the portfolio compression problem. By this we mean that an admissible strategies may include no more than m different stocks concurrently, where m may be less than the total number n of available stocks.
|Date of creation:||Jul 2002|
|Date of revision:|
|Publication status:||Published in Quantitative Finance 1(2001), iss. 3, 336-345|
|Contact details of provider:|| Web page: http://arxiv.org/|
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- Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
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