Optimal Portfolio under a Conditional Value-at-Risk Constraint
Date Issued
2006
Date
2006
Author(s)
Tzeng, Chiung-Chiou
DOI
zh-TW
Abstract
This paper looks at the optimal portfolio when a conditional value-at-risk dynamic constraint is imposed and analyses the consumption, utility and asset value in the portfolio. The optimal portfolio problem is formulated as a constrained maximization of expected utility.
This follows the method used in K.F.C. Yiu (2004). The dynamic programming technique is applied to derive the HJB equation, the method of Lagrange multiplier is used to tackle the constraint and numerical method is proposed to solve the HJB equation and the optimal constrained portfolio allocation.
The paper also looks the difference of portfolio under different asset loss distributions and different risk measure constraints, compares the result to intuitions and hopes to find a way to measure market risk adequately. We find that investments in risky assets are reduced by the imposed constraint, and the CVaR constraint is more powerful under an asset loss distribution with an extreme event.
Subjects
條件風險值
CVaR
Type
thesis
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