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On the Computation of Optimal Monotone Mean-Variance Portfolios via Truncated Quadratic Utility

  • Ales Cerný
  • Fabio Maccheroni
  • Massimo Marinacci
  • Aldo Rustichini

We report a surprising link between optimal portfolios generated by a special type of variational preferences called divergence preferences (cf. [8]) and optimal portfolios generated by classical expected utility. As a special case we connect optimization of truncated quadratic utility (cf. [2]) to the optimal monotone mean-variance portfolios (cf. [9]), thus simplifying the computation of the latter.

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Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 79.

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Length: 19 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:cca:wpaper:79
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  1. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini & Marco Taboga, 2004. "Portfolio Selection with Monotone Mean-Variance Preferences," Carlo Alberto Notebooks 6, Collegio Carlo Alberto, revised 2007.
  2. 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.
  3. 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.
  4. Cern›, Ales, 2002. "Generalized Sharpe Ratios and Asset Pricing in Incomplete Markets," Royal Economic Society Annual Conference 2002 41, Royal Economic Society.
  5. 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.
  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. L. Randall Wray & Stephanie Bell, 2004. "Introduction," Chapters, in: Credit and State Theories of Money, chapter 1 Edward Elgar.
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