Optimal Asset Allocation: A Worst Scenario Expectation Approach

Fei Lung Yuen, Hailiang Yang

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Mean-variance criterion has long been the main stream approach in the optimal portfolio theory. The investors try to balance the risk and the return on their portfolio. In this paper, the deviation of the asset return from the investor’s xpectation in the worst scenario is used as the measure of risk for portfolio election. One important advantage of this approach is that the investors can base on their own knowledge, information, and preference on various risks, in addition to the asset’s volatility, to adjust their exposure to various risks. It also pinpoints one main concern of the investors when they invest, the amount they lose in the worst situation.
Original languageEnglish
Pages (from-to)794-811
Number of pages18
JournalJournal of Optimization Theory and Applications
Volume153
Issue number3
DOIs
Publication statusPublished - Jun 2012

Keywords

  • Asset allocation
  • Risk measure
  • Information uncertainty
  • Worst case scenario
  • Incomplete market

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