We derive a closed form portfolio optimization rule for an investor who is diffident about mean return and volatility estimates, and has a CRRA utility. Confidence is here represented using ellipsoidal uncertainty sets for the drift, given a (compact valued) volatility realization. This specification affords a simple and concise analysis, as the agent becomes observationally equivalent to one with constant, worst case parameters. The result is based on a max–min Hamilton–Jacobi–Bellman–Isaacs PDE, which extends the classical Merton problem and reverts to it for an ambiguity-neutral investor.
The robust Merton problem of an ambiguity averse investor / Biagini, Sara; Pınar, Mustafa Ç.. - In: MATHEMATICS AND FINANCIAL ECONOMICS. - ISSN 1862-9679. - 11:1(2017), pp. 1-24. [10.1007/s11579-016-0168-6]
Titolo: | The robust Merton problem of an ambiguity averse investor | |
Autori: | ||
Data di pubblicazione: | 2017 | |
Rivista: | ||
Citazione: | The robust Merton problem of an ambiguity averse investor / Biagini, Sara; Pınar, Mustafa Ç.. - In: MATHEMATICS AND FINANCIAL ECONOMICS. - ISSN 1862-9679. - 11:1(2017), pp. 1-24. [10.1007/s11579-016-0168-6] | |
Handle: | http://hdl.handle.net/11385/171254 | |
Appare nelle tipologie: | 01.1 - Articolo su rivista (Article) |
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