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Optimal Portfolios with Bounded Capital at Risk

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  • Susanne Emmer
  • Claudia Klüppelberg
  • Ralf Korn

Abstract

We consider some continuous‐time Markowitz type portfolio problems that consist of maximizing expected terminal wealth under the constraint of an upper bound for the capital at risk. In a Black–Scholes setting we obtain closed‐form explicit solutions and compare their form and implications to those of the classical continuous‐time mean‐variance problem. We also consider more general price processes that allow for larger fluctuations in the returns.

Suggested Citation

  • Susanne Emmer & Claudia Klüppelberg & Ralf Korn, 2001. "Optimal Portfolios with Bounded Capital at Risk," Mathematical Finance, Wiley Blackwell, vol. 11(4), pages 365-384, October.
    • Handle: RePEc:bla:mathfi:v:11:y:2001:i:4:p:365-384
    DOI: 10.1111/1467-9965.00121
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