Ambiguity and optimal portfolio choice with Value-at-Risk constraint

Bong-Gyu Jang and Seyoung Park

Finance Research Letters, 2016, vol. 18, issue C, 158-176

Abstract: Integrating a Value-at-Risk constraint on a fund manager’s wealth and ambiguity, we present a model of optimal portfolio choice for a fund manager who allocates her wealth between risky and riskless assets. When a fund manager controls asset composition, her reactions differ with respect to an increase in only risk aversion and only ambiguity aversion. When the sum of coefficients of risk aversion and ambiguity aversion is fixed, the effect of risk aversion on risky investment dominates the effect of ambiguity aversion in that stock holdings are dramatically smaller in the absence of ambiguity aversion than in its presence.

Keywords: Ambiguity aversion; Risk aversion; Value-at-Risk (VaR); Optimal portfolio; Wealth management (search for similar items in EconPapers)
JEL-codes: C61 G11 G12 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:18:y:2016:i:c:p:158-176

DOI: 10.1016/j.frl.2016.04.013

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