Optimal Investment with Risk Controlled by Weighted Entropic Risk Measures

Jianming Xia

Papers from arXiv.org

Abstract: A risk measure that is consistent with the second-order stochastic dominance and additive for sums of independent random variables can be represented as a weighted entropic risk measure (WERM). The expected utility maximization problem with risk controlled by WERM and a related risk minimization problem are investigated in this paper. The latter is same to a problem of maximizing a weighted average of constant-absolute-risk-aversion (CARA) certainty equivalents. The solutions of all the optimization problems are explicitly characterized and an iterative method of the solutions is provided.

Date: 2021-12
New Economics Papers: this item is included in nep-rmg and nep-upt
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