Optimal portfolio with vector expected utility

Eric André

Mathematical Social Sciences, 2014, vol. 69, issue C, 50-62

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.

Date: 2014
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Related works:
Working Paper: Optimal portfolio with vector expected utility (2025)
Working Paper: Optimal portfolio with vector expected utility (2014)
Working Paper: Optimal Portfolio with Vector Expected Utility (2013)
Working Paper: Optimal Portfolio with Vector Expected Utility (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:matsoc:v:69:y:2014:i:c:p:50-62

DOI: 10.1016/j.mathsocsci.2014.02.001

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