Robust Portfolio Choice under the Modified Constant Elasticity of Variance

Wei Li Fan and Marcos Escobar Anel ()
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Wei Li Fan: Department of Statistical and Actuarial Sciences, University of Western Ontario, London, ON N6A 5B7, Canada

Mathematics, 2024, vol. 12, issue 3, 1-31

Abstract: This study investigates ambiguity aversion within the framework of a utility-maximizing investor under a modified constant-elasticity-of-volatility (M-CEV) model for the underlying asset. We derive closed-form solutions of a non-affine type for the optimal allocation and value function via a Cauchy problem. This work generalizes previous results in non-ambiguous settings by extending existing work to Hyperbolic Absolute Risk Aversion utility (HARA), correcting some typos in the literature for Constant Relative Risk Aversion utility (CRRA). Helpful details and derivations are also included in the manuscript.

Keywords: M-CEV model; expected utility; HARA; ambiguity-aversion; Cauchy problem (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2024
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