The influence of perceived stock value price histories in the mean–variance-instability model

The influence of perceived stock value price histories in the mean–variance-instability model

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Article ID: iaor20013992
Country: Netherlands
Volume: 128
Issue: 1
Start Page Number: 185
End Page Number: 191
Publication Date: Jan 2001
Journal: European Journal of Operational Research
Authors: ,
Keywords: risk
Abstract:

The model introduced by H. Talpaz, A. Harpaz and J.B. Penson extends the mean–variance model introducing the concept of instability. In this way it is possible to see an investor's attitude towards predicted instability. In this paper we show how optimisation procedures based on penalty (or preferred) weighted instability matrices can be interpreted in terms of real time utility functions which depend on an ‘actual’ and a ‘remembered’ time series due to fading memory. This approach justifies some bounded normalised functions used to represent the investor's preference between the irregular frequency fluctuations.

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