Portfolio Modeling with Sustainability Constraints

Carl Chiarella, Willi Semmler, Chih-Ying Hsiao and Lebogang Mateane
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Chih-Ying Hsiao: University of Technology

Chapter Chapter 3 in Sustainable Asset Accumulation and Dynamic Portfolio Decisions, 2016, pp 19-51 from Springer

Abstract: Abstract As mentioned in Chap. 1 following the events of the world-wide financial crisis over the periods 2007–2009, the risk profile of some assets changed drastically and many assets exhibited large losses. These events have reinforced thinking about proper portfolio models that not only avoid large losses, but also allow to impose some constraints. This chapter will introduce standard static portfolio models that however also impose some constraints. Asset accumulation through saving or consumption decisions, will not be discussed in this chapter, so we will assume that the funds are given and only asset allocations have to be made. More generally, portfolio decisions under constraints are important for practitioners that invest on behalf of institutions with some ethical or social guidelines. For example, investment decisions of wealth funds, pension funds or university endowments, are often supposed to follow multiple guidelines and procedures rather than only choosing one procedure, such as an optimizing procedure without constraints. This is a point emphasized by Danthine and Donaldson (2005). They note that one step corresponds to the choice of instruments, another decision corresponds to the country or sector allocation or the choice of specific individual assets based on available information—to all of them maybe some constraints attached.

Keywords: Risk Aversion; Risky Asset; Sharpe Ratio; Asset Allocation; Corporate Bond (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:spr:dymchp:978-3-662-49229-1_3

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DOI: 10.1007/978-3-662-49229-1_3

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