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Multiple Priors And No-Transaction Region

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  • Kozhan, Roman

Abstract

We study single period asset allocation problems of the investor who maximizes the expected utility with respect to non-additive beliefs. The non-additive beliefs of the investor model the presence of an uncertainty and they are assumed to be consistent with the Maxmin expected utility theory of Gilboa and Schmeidler (1989). The proportional transaction costs are incorporated into the model. We provide the explicit form solutions for the bounds of no-transaction regions which completely determine the optimal policy of the investor.

Suggested Citation

  • Kozhan, Roman, 2006. "Multiple Priors And No-Transaction Region," Working Paper Series 2006,4, European University Viadrina Frankfurt (Oder), The Postgraduate Research Programme Capital Markets and Finance in the Enlarged Europe.
    • Handle: RePEc:zbw:euvgra:20064
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    Cited by:

    1. Badunenko, Oleg & Fritsch, Michael & Stephan, Andreas, 2008. "Allocative efficiency measurement revisited--Do we really need input prices?," Economic Modelling, Elsevier, vol. 25(5), pages 1093-1109, September.
    2. Bialkowski, Jedrzej & Gottschalk, Katrin & Wisniewski, Tomasz Piotr, 2006. "Political Orientation of Government and Stock Market Returns," Working Paper Series 2006,9, European University Viadrina Frankfurt (Oder), The Postgraduate Research Programme Capital Markets and Finance in the Enlarged Europe.

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    More about this item

    Keywords

    uncertainty modelling; utility theory; maxmin portfolio selection; transaction costs;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory

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