Mean semi-deviation from a target and robust portfolio choice under distribution and mean return ambiguity

• Autores: Mustafa Ç. Pinar, A. Burak Paç
• Localización: Journal of computational and applied mathematics, ISSN 0377-0427, Vol. 259, Nº 2, 2014, págs. 394-405
• Idioma: inglés
• DOI: 10.1016/j.cam.2013.06.028
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• Resumen

  • We consider the problem of optimal portfolio choice using the lower partial moments risk measure for a market consisting of n risky assets and a riskless asset. For when the mean return vector and variance/covariance matrix of the risky assets are specified without specifying a return distribution, we derive distributionally robust portfolio rules. We then address potential uncertainty (ambiguity) in the mean return vector as well, in addition to distribution ambiguity, and derive a closed-form portfolio rule for when the uncertainty in the return vector is modelled via an ellipsoidal uncertainty set. Our result also indicates a choice criterion for the radius of ambiguity of the ellipsoid. Using the adjustable robustness paradigm we extend the single-period results to multiple periods, and derive closed-form dynamic portfolio policies which mimic closely the single-period policy.