Optimal Portfolio with Vector Expected Utility

Eric André

No 1308, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: We study the optimal portfolio selected by an investor who conforms to Siniscalchi (2009)’s Vector Expected Utility’s (VEU) axioms and who is ambiguity averse. To this end, we derive a mean-variance preference generalised to ambiguity from the second-order Taylor-Young expansion of the VEU certainty equivalent. We apply this Mean Variance Variability preference to the static two-assets portfolio problem and deduce asset allocation results which extend the mean-variance analysis to ambiguity in the VEU framework. Our criterion has attractive features: it is axiomatically well-founded and analytically tractable, it is therefore well suited for applications to asset pricing as proved by a novel analysis of the home-bias puzzle with two ambiguous assets.

Keywords: Vector Expected Utility; Ambiguity; Portfolio Choice; Home-bias Puzzle. (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2013-02-11, Revised 2013-02-11
New Economics Papers: this item is included in nep-upt
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Related works:
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Journal Article: Optimal portfolio with vector expected utility (2014)
Working Paper: Optimal portfolio with vector expected utility (2014)
Working Paper: Optimal Portfolio with Vector Expected Utility (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:1308

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