Dynamic mean-risk optimization in a binomial model

Dynamic mean-risk optimization in a binomial model

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Article ID: iaor200971925
Country: Germany
Volume: 70
Issue: 2
Start Page Number: 219
End Page Number: 239
Publication Date: Oct 2009
Journal: Mathematical Methods of Operations Research
Authors: ,
Keywords: optimization
Abstract:

We consider a dynamic mean-risk problem, where the risk constraint is given by the Average Value–at–Risk. As financial market we choose a discrete-time binomial model which allows for explicit solutions. Problems where the risk constraint on the final wealth is replaced by intermediate risk constraints are also considered. The problems are solved with the help of the theory of Markov decision models and a Lagrangian approach.

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