Adelaide Research & Scholarship
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https://hdl.handle.net/2440/40091
| Type: | Conference paper |
| Title: | Martingale methods in dynamic portfolio allocation with distortion operators |
| Author: | Hamada, Mahmoud Sherris, Michael van der Hoek, John |
| Citation: | Proceedings of the 2001 Quantitative Methods in Finance Conference : pp.www1-www35. |
| Issue Date: | 2001 |
| Conference Name: | Quantitative Methods in Finance Conference (2001 : Sydney, Australia) |
| School/Discipline: | School of Mathematical Sciences : Applied Mathematics |
| Statement of Responsibility: | Mahmoud Hamada, Michael Sherris & John van der Hoek |
| Abstract: | Standard optimal portfolio choice models assume that investors maximise the expected utility of their future outcomes. However, behaviour which is inconsistent with the expected utility theory has often been observed. In a discrete time setting, we provide a formal treatment of risk measures based on distortion functions that are consistent with Yaari’s dual (non-expected utility) theory of choice (1987), and set out a general layout for portfolio optimisation in this non-expected utility framework using the risk neutral computational approach. As an application, we consider two particular risk measures. The first one is based on the PH-transform and treats the upside and downside of the risk differently. The second one, introduced by Wang (2000) uses a distortion operator based on the cumulative normal distribution function. |
| Appears in Collections: | Applied Mathematics publications |
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