IDEAS home Printed from https://ideas.repec.org/a/spr/finsto/v29y2025i2d10.1007_s00780-024-00555-z.html
   My bibliography  Save this article

Risk-constrained portfolio choice under rank-dependent utility

Author

Listed:
  • Mario Ghossoub

    (University of Waterloo)

  • Michael Boyuan Zhu

    (University of Waterloo)

Abstract

We revisit the problem of portfolio choice for a rank-dependent utility maximiser in an arbitrage-free and complete market, subject to a budget constraint and a risk exposure constraint. We extend previous results in the literature by considering a general distortion risk measure for measuring risk exposure, which covers a wide range of popular risk measures such as value-at-risk, expected shortfall, spectral risk measures, etc. We first show that a solution exists for the portfolio selection problem with multiple constraints under general conditions. We provide a closed-form characterisation of optimal portfolios, all the while dispensing with extraneous monotonicity assumptions typically used in the literature. We then consider some important and economically relevant special cases of our general setup and provide illustrative numerical examples.

Suggested Citation

  • Mario Ghossoub & Michael Boyuan Zhu, 2025. "Risk-constrained portfolio choice under rank-dependent utility," Finance and Stochastics, Springer, vol. 29(2), pages 399-442, April.
    • Handle: RePEc:spr:finsto:v:29:y:2025:i:2:d:10.1007_s00780-024-00555-z
    DOI: 10.1007/s00780-024-00555-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00780-024-00555-z
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00780-024-00555-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Portfolio choice; Rank-dependent utility; Quantile formulation; Choquet integral; Distortion risk measures;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:finsto:v:29:y:2025:i:2:d:10.1007_s00780-024-00555-z. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.