Ambiguity in portfolio selection

Georg Pflug and David Wozabal

Quantitative Finance, 2007, vol. 7, issue 4, 435-442

Abstract: In this paper, we consider the problem of finding optimal portfolios in cases when the underlying probability model is not perfectly known. For the sake of robustness, a maximin approach is applied which uses a 'confidence set' for the probability distribution. The approach shows the tradeoff between return, risk and robustness in view of the model ambiguity. As a consequence, a monetary value of information in the model can be determined.

Keywords: Portfolio optimization; Robustness; Minimax (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (88)

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DOI: 10.1080/14697680701455410

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