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Worst-case scenario portfolio optimization: a new stochastic control approach

Korn, Ralf and Menkens, Olaf (2005) Worst-case scenario portfolio optimization: a new stochastic control approach. Mathematical Methods of Operations Research, 62 (1). pp. 123-140. ISSN 1432-5217

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Abstract

We consider the determination of portfolio processes yielding the highest worst-case bound for the expected utility from final wealth if the stock price may have uncertain (down) jumps. The optimal portfolios are derived as solutions of non-linear differential equations which itself are consequences of a Bellman principle for worst-case bounds. A particular application of our setting is to model crash scenarios where both the number and the height of the crash are uncertain but bounded. Also the situation of changing market coefficients after a possible crash is analyzed.

Item Type:Article (Published)
Refereed:Yes
Additional Information:The original publication is available at www.springerlink.com
Uncontrolled Keywords:optimal portfolios; crash modelling; Bellman principle; equilibrium strategies; worst-case scenario; changing market coefficients;
Subjects:Mathematics
DCU Faculties and Centres:DCU Faculties and Schools > Faculty of Science and Health > School of Mathematical Sciences
Publisher:Physica Verlag, An Imprint of Springer-Verlag GmbH
Official URL:http://dx.doi.org/10.1007/s00186-005-0444-3
Use License:This item is licensed under a Creative Commons Attribution-NonCommercial-Share Alike 3.0 License. View License
ID Code:507
Deposited On:19 Jun 2008 by DORAS Administrator. Last Modified 16 Feb 2009 14:51

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