Journal article
Risk-constrained portfolio choice under rank-dependent utility
Finance and stochastics, Vol.29(2), pp.399-442
04/01/2025
DOI: 10.1007/s00780-024-00555-z
Abstract
We revisit the problem of portfolio choice for a rank-dependent utility maximiser in an arbitrage-free and complete market, subject to a budget constraint and a risk exposure constraint. We extend previous results in the literature by considering a general distortion risk measure for measuring risk exposure, which covers a wide range of popular risk measures such as value-at-risk, expected shortfall, spectral risk measures, etc. We first show that a solution exists for the portfolio selection problem with multiple constraints under general conditions. We provide a closed-form characterisation of optimal portfolios, all the while dispensing with extraneous monotonicity assumptions typically used in the literature. We then consider some important and economically relevant special cases of our general setup and provide illustrative numerical examples.
Details
- Title: Subtitle
- Risk-constrained portfolio choice under rank-dependent utility
- Creators
- Mario Ghossoub - University of WaterlooMichael Boyuan Zhu - University of Waterloo
- Resource Type
- Journal article
- Publication Details
- Finance and stochastics, Vol.29(2), pp.399-442
- DOI
- 10.1007/s00780-024-00555-z
- ISSN
- 0949-2984
- eISSN
- 1432-1122
- Publisher
- Springer Nature
- Number of pages
- 44
- Language
- English
- Date published
- 04/01/2025
- Academic Unit
- Statistics and Actuarial Science
- Record Identifier
- 9985179682802771
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