INITIAL INVESTMENT CHOICE AND OPTIMAL FUTURE ALLOCATIONS UNDER TIME-MONOTONE PERFORMANCE CRITERIA

M. Musiela and T. Zariphopoulou
Additional contact information
M. Musiela: BNP Paribas, 10 Harewood Avenue, London NW1 6AA, United Kingdom
T. Zariphopoulou: Oxford-Man Institute of Quantitative Finance, Eagle House, Walton Well Road, Oxford OX2 6ED, United Kingdom and The Mathematical Institute, University of Oxford, Oxford, United Kingdom and Departments of Mathematics and IROM, The University of Texas at Austin, 1 University Station, Austin, TX 78712, USA

Chapter 22 in Finance at Fields, 2012, pp 499-519 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThe paper offers a new perspective on optimal portfolio choice by investigating how and to what extent knowledge of an investor's desirable initial investment choice can be used to determine his future optimal portfolio allocations. Optimality of investment decisions is built on the so-called forward investment performance criteria and, in particular, on the time-monotone ones. It is shown that for this class of forward criteria the desired initial allocations completely characterize the future optimal investment strategies. The analysis uses the connection between a nonlinear equation, satisfied by the local risk tolerance, and the backward heat equation. Complete solutions are provided as well as various examples.

Keywords: Mathematical Finance; Financial Mathematics; Risk Management; Asset Pricing; Computational Finance; Derivatives; Option Pricing; Portfolio Optimization (search for similar items in EconPapers)
Date: 2012
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789814407892_0022 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789814407892_0022 (text/html)
Ebook Access is available upon purchase.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789814407892_0022

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().