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
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