Wealth Effect on Portfolio Allocation in Incomplete Markets
We develop a novel five-component decomposition of optimal dynamic portfolio choice, which reveals the simultaneous impacts from market incompleteness and wealth-dependent utilities. Under the HARA utility and a nonrandom interest rate, we can explicitly solve for the optimal policy as a combination of a bond holding scheme and the corresponding simpler CRRA strategy. Under a stochastic volatility model estimated on US equity data, we use closed-form solution to demonstrate the sophisticated impacts from the wealth-dependent utilities, including cycle-dependence and hysteresis effect in optimal portfolio allocation, as well as a risk-return trade-off in investment performance.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Value-at-Risk constrained portfolios in incomplete markets: a dynamic programming approach to Heston's model
We solve an expected utility-maximization problem with a Value-at-risk constraint on the terminal portfolio value in an incomplete financial market due to stochastic volatility. To derive the optimal investment strategy,…
Online Universal Dirichlet Factor Portfolios
We revisit the online portfolio allocation problem and propose universal portfolios that use factor weighing to produce portfolios that out-perform uniform dirichlet allocation schemes. We show a few analytical results o…
Dynamic Mean-Variance Asset Allocation in General Incomplete Markets A Nonlocal BSDE-based Feedback Control Approach
This paper studies dynamic mean-variance (MV) asset allocation problems in general incomplete markets. Besides of the conventional MV objective on portfolio's terminal wealth, our framework can accommodate running MV obj…
Model-free portfolio allocation in continuous-time
We present a non-probabilistic, path-by-path framework for studying path-dependent (i.e., where weight is a functional of time and historical time-series), long-only portfolio allocation in continuous-time based on [Chiu…
modelOptimal portfolio under ratio-type periodic evaluation in incomplete markets with stochastic factors
This paper studies a type of periodic utility maximization for portfolio management in an incomplete market model, where the underlying price diffusion process depends on some external stochastic factors. The portfolio p…
Management