Asset allocation with distorted beliefs and transaction costs

European Journal of Operational Research

Volumn 194, Issue 1, 2009, Pages 236-249

  Kozhan, Roman ^a   Schmid, Wolfgang ^b  

^a UNIVERSITY OF WARWICK   (United Kingdom)

^b EUROPEAN UNIVERSITY VIADRINA   (Germany)

Author keywords

Asset allocation; Distortion function; Knightian uncertainty; Transaction costs

Indexed keywords

FREE VOLUME; INVESTMENTS; RISK PERCEPTION;

ASSET ALLOCATION; ASSET ALLOCATIONS; CHOQUET EXPECTED UTILITIES; DISTORTION FUNCTION; EXPECTED UTILITY MODELS; KNIGHTIAN UNCERTAINTIES; KNIGHTIAN UNCERTAINTY; OPTIMAL PORTFOLIO SELECTIONS; OPTIMAL STRATEGIES; RISKY ASSETS; TRADED VOLUMES; TRANSACTION COSTS;

COSTS;

EID: 54049108190     PISSN: 03772217     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.ejor.2007.12.002     Document Type: Article

References (33)

1. Andersen, E., Hansen, L., Sargent, T., 2000. Robustness direction and the price of risk. Working Paper, University of Chicago.
2. Bellman R., and Zadeh L.A. Decision making in a fuzzy environment. Management Science 17 (1970) 141-164
3. Boyle P., and Lin X. Optimal portfolio selection with transaction costs. North American Actuarial Journal 2 (1997) 27-39
4. Camerer C., and Weber M. Recent developments in modeling preferences: Uncertainty and ambiguity. Journal of Risk and Uncertainty 5 (1992) 325-370
5. Carlier G., and Dana R. Core of convex distortions of a probability. Journal of Economic Theory 113 2 (2003) 199-222
6. Chen Z., and Epstein L. Ambiguity, risk and asset returns in continuous time. Econometrica 70 (2002) 1403-1443
7. Choquet G. Theory of capacities. Annales de l'Institut Fourier 5 (1953) 131-295
8. Constantinides G. Multiperiod consumption and investment behavior with convex transaction costs. Management Science 25 (1979) 1127-1137
9. Denneberg D. Non-additive measure and integral (1994), Kluwer Academic Publishers, Dordrecht
10. Davis M., and Norman A. Portfolio selection with transaction costs. Mathematics of Operation Research 15 (1990) 676-713
11. Dow J., and Werlang S. Uncertainty aversion, risk aversion, and the optimal choice of portfolio. Econometrica 60 1 (1992) 197-204
12. Dubois D., and Prade H. Possibility Theory (1988), Plenum Press, New York
13. Dumas B., and Luciano E. An exact solution to a dynamic portfolio choice problem under transaction costs. Journal of Finance 46 (1991) 577-595
14. Ellsberg D. Risk, ambiguity and Savage axioms. Quarterly Journal of Economics 75 (1961) 643-669
15. Fang Y., Lai K.K., and Wang S.-Y. Portfolio rebalancing model with transaction costs based on fuzzy decision theory. European Journal of Operational Research 175 2 (2005) 879-893
16. Garlappi, L., Uppal, R., Wang, T., 2004. Portfolio selection with parameter and model uncertainty: A multi-prior approach, Working Paper.
17. Gennotte G., and Jung A. Investment strategies under transaction costs: The finite horizon case. Management Science 40 (1994) 385-404
18. Gilboa I., and Schmeidler D. Maxmin expected utility with non-unique prior. Journal of Mathematical Economics 18 (1989) 141-153
19. Hamada, M., Sherris, M., 2001. Contingent claim pricing using probability distortion operators, Working paper.
20. Knight F. Risk, Uncertainty and Profit (1921), Houghton Mifflin, Boston
21. Kozhan, R., 2006. Portfolio selection under the Choquet expected utility model. PhD Thesis, Frankfurt (Oder).
22. Kozhan, R., Schmid, W., 2005. Optimal investment decisions with exponential utility function. Working Paper, European University Viadrina, 2/2005.
23. Merton R.C. Continuous Time Finance (1990), Basil Blackwell, Cambridge
24. Quiggin J. A theory of anticipated utility. Journal of Economic Behavior and Organization 3 (1982) 323-343
25. Quiggin J. Generalized expected utility theory: The rank-dependent model (1993), Kluwer Academic, Boston
26. Sarin R.K., and Wakker P. A simple axiomatization of nonadditive expected utility. Econometrica 60 (1992) 1255-1272
27. Savage L.J. The foundations of statistics (1954), Dower Publications, New York
28. Schmeidler D. Subjective probability and expected utility without additivity. Econometrica 57 3 (1989) 571-587
29. Uppal R., and Wang T. Model misspecification and underdiversification. Journal of Finance 58 (2003) 2465-2486
30. Wang S. A class of distortion operators for pricing financial and insurance risks. Journal of Risk and Insurance 67 1 (2000) 15-36
31. Wang S.S., Young V.R., and Panjer H.H. Axiomatic characterization of insurance prices. Insurance: Mathematics and Economics 21 2 (1997) 173-183
32. Yaari M. The dual theory of choice under risk. Econometrica 55 1 (1987) 95-115
33. Zhao Y., Haussmann U., and Ziemba W. A dynamic investment model with control on the portfolio's worst case outcome. Mathematical Finance 13 4 (2003) 481-501