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Dynamic mean-risk optimization in a binomial model

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  • Nicole Bäuerle
  • André Mundt

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. Copyright Springer-Verlag 2009

Suggested Citation

  • Nicole Bäuerle & André Mundt, 2009. "Dynamic mean-risk optimization in a binomial model," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 70(2), pages 219-239, October.
    • Handle: RePEc:spr:mathme:v:70:y:2009:i:2:p:219-239
    DOI: 10.1007/s00186-008-0267-0
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    References listed on IDEAS

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    1. Traian A. Pirvu, 2007. "Portfolio optimization under the Value-at-Risk constraint," Quantitative Finance, Taylor & Francis Journals, vol. 7(2), pages 125-136.
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    4. Gino Favero & Tiziano Vargiolu, 2006. "Shortfall risk minimising strategies in the binomial model: characterisation and convergence," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 64(2), pages 237-253, October.
    5. Duan Li & Wan‐Lung Ng, 2000. "Optimal Dynamic Portfolio Selection: Multiperiod Mean‐Variance Formulation," Mathematical Finance, Wiley Blackwell, vol. 10(3), pages 387-406, July.
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    7. Rockafellar, R. Tyrrell & Uryasev, Stanislav, 2002. "Conditional value-at-risk for general loss distributions," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1443-1471, July.
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    Cited by:

    1. Escudero Bueno, Laureano F. & Garín Martín, María Araceli & Merino Maestre, María & Pérez Sainz de Rozas, Gloria, 2015. "Some experiments on solving multistage stochastic mixed 0-1 programs with time stochastic dominance constraints," BILTOKI 1134-8984, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
    2. Escudero, Laureano F. & Garín, María Araceli & Merino, María & Pérez, Gloria, 2016. "On time stochastic dominance induced by mixed integer-linear recourse in multistage stochastic programs," European Journal of Operational Research, Elsevier, vol. 249(1), pages 164-176.

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