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Optimal Dynamic Portfolio Selection with Earnings-at-Risk

Author

Listed:
  • Z. F. Li

    (Sun Yat-Sen University)

  • H. Yang

    (The University of Hong Kong)

  • X. T. Deng

    (City University of Hong Kong)

Abstract

In this paper we investigate a continuous-time portfolio selection problem. Instead of using the classical variance as usual, we use earnings-at-risk (EaR) of terminal wealth as a measure of risk. In the settings of Black-Scholes type financial markets and constantly-rebalanced portfolio (CRP) investment strategies, we obtain closed-form expressions for the best CRP investment strategy and the efficient frontier of the mean-EaR problem, and compare our mean-EaR analysis to the classical mean-variance analysis and to the mean-CaR (capital-at-risk) analysis. We also examine some economic implications arising from using the mean-EaR model.

Suggested Citation

  • Z. F. Li & H. Yang & X. T. Deng, 2007. "Optimal Dynamic Portfolio Selection with Earnings-at-Risk," Journal of Optimization Theory and Applications, Springer, vol. 132(3), pages 459-473, March.
    • Handle: RePEc:spr:joptap:v:132:y:2007:i:3:d:10.1007_s10957-007-9184-2
    DOI: 10.1007/s10957-007-9184-2
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    References listed on IDEAS

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    Cited by:

    1. Jiuping Xu & Xiaoyang Zhou & Steven Li, 2011. "A Class of Chance Constrained Multi-objective Portfolio Selection Model Under Fuzzy Random Environment," Journal of Optimization Theory and Applications, Springer, vol. 150(3), pages 530-552, September.

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