Static and dynamic portfolio allocation with nonstandard utility functions

Antonio Santos ()

No 9375, EcoMod2016 from EcoMod

Abstract: This article builds on the mean-variance criterion and the links with the expected utility maximization to define the optimal allocation of portfolios, and extends the results in two ways, first considers tailored made utility functions, which can be non continuous and able to capture possible preferences associated with some portfolio managers. Second, it presents results that relate to static (myopic) portfolio allocation decisions connected to dynamic settings where multi-period allocations are considered and conditions are defined to rebalance the portfolio as new information arrive. The conditions are established for the compatibility of static and dynamic decisions associated with different utility functions. We model agents’ decisions associated with portfolio allocation within the expected utility maximization framework. We expect to link the common paradigm of the mean-variance criterion associated with myopic portfolio allocation problems with a more practical implementation of such decision problems, where non continuous utility functions and multi-period type of decisions can play an important role.

Keywords: Portugal; Agent-based modeling; Optimization models (search for similar items in EconPapers)
Date: 2016-07-04
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ekd:009007:9375

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