Pessimistic Portfolio Allocation and Choquet Expected Utility

Gilbert Bassett

Journal of Financial Econometrics, 2004, vol. 2, issue 4, 477-492

Abstract: Recent developments in the theory of choice under uncertainty and risk yield a pessimistic decision theory that replaces the classical expected utility criterion with a Choquet expectation that accentuates the likelihood of the least favorable outcomes. A parallel theory has recently emerged in the literature on risk assessment. It is shown that a general form of pessimistic portfolio optimization based on the Choquet approach may be formulated as a problem of linear quantile regression. Copyright 2004, Oxford University Press.

Date: 2004
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