Risk-constrained dynamic portfolio management

Date

2010-02-08

Author

Akume, Daniel
Weber, Gerhard Wilhelm

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We consider a portfolio problem when a Tail Conditional Expectation constraint is imposed. The financial market is composed of n risky assets driven by geometric Brownian motion and one risk-free asset. The Tail Conditional Expectation is derived, re-calculated at short intervals of time and imposed continuously. The method of Lagrange multipliers is combined with the Hamilton-Jacobi-Bellman equation to insert the constraint into the resolution framework. A numerical method is applied to obtain an approximate solution to the problem. We find that the imposition of the Tail Conditional Expectation constraint when risky assets evolve following a log-normal distribution, curbs investment in the risky assets and diverts the wealth to consumption. Copyright © 2010 Watam Press.

Subject Keywords

Portfolio optimization, Power utility, Risk management, Tail conditional expectation, Value-at-risk

URI

https://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=75749097755&origin=inward
https://hdl.handle.net/11511/106915

Journal

Dynamics of Continuous, Discrete and Impulsive Systems Series B: Applications and Algorithms

Collections

Graduate School of Applied Mathematics, Article

Citation Formats

D. Akume and G. W. Weber, “Risk-constrained dynamic portfolio management,” Dynamics of Continuous, Discrete and Impulsive Systems Series B: Applications and Algorithms, vol. 17, no. 1, pp. 113–129, 2010, Accessed: 00, 2023. [Online]. Available: https://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=75749097755&origin=inward.