Portfolio allocation problems between risky and ambiguous assets

Takao Asano () and Yusuke Osaki ()
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Takao Asano: Okayama University
Yusuke Osaki: Waseda University

Annals of Operations Research, 2020, vol. 284, issue 1, No 3, 63-79

Abstract: Abstract This paper considers a portfolio allocation problem between a risky asset and an ambiguous asset, and investigates how greater ambiguity aversion influences the optimal proportion invested in the two assets. We derive several sufficient conditions under which greater ambiguity aversion decreases the optimal proportion invested in the ambiguous asset. Furthermore, we consider an international diversification problem as an application and show that ambiguity aversion partially resolves the home bias puzzle.

Keywords: Uncertainty modelling; Home bias puzzle; Portfolio allocation problem; Smooth ambiguity model; Greater ambiguity aversion (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10479-019-03206-1

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