Bayesian portfolio selection with multi-variate random variance models

Bayesian portfolio selection with multi-variate random variance models

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Article ID: iaor2007774
Country: Netherlands
Volume: 171
Issue: 3
Start Page Number: 977
End Page Number: 990
Publication Date: Jun 2006
Journal: European Journal of Operational Research
Authors: ,
Keywords: decision theory: multiple criteria, programming: dynamic
Abstract:

We consider multi-period portfolio selection problems for a decision maker with a specified utility function when the variance of security returns is described by a discrete time stochastic model. The solution of these problems involves a dynamic programming formulation and backward induction. We present a simulation-based method to solve these problems adopting an approach which replaces the preposterior analysis by a surface fitting based optimization approach. We provide examples to illustrate the implementation of our approach.

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