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A General Optimal Investment Model In The Presence Of Background Risk

Author

Listed:
  • MOAWIA ALGHALITH

    (Department of Economics, The University of the West Indies, I, St. Augustine, Trinidad & Tobogo)

  • XU GUO

    (#x2020;Nanjing University of Aeronautics and Astronautics, P. R. China)

  • WING-KEUNG WONG

    (#x2021;Department of Economics, Hong Kong Baptist University, Kowloon Tang, Hong Kong)

  • LIXING ZHU

    (#xA7;School of Statistics, Beijing Normal University, ChinaDepartment of mathematics, Hong Kong Baptist University, Kowloon Tang, Hong Kong)

Abstract

In this paper we present two dynamic models of background risk. We first present a stochastic factor model with an additive background risk. Then, we present a dynamic model of simultaneous (correlated) multiplicative background risk and additive background risk. In so doing, we use a general utility function.

Suggested Citation

  • Moawia Alghalith & Xu Guo & Wing-Keung Wong & Lixing Zhu, 2016. "A General Optimal Investment Model In The Presence Of Background Risk," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 1-8, March.
    • Handle: RePEc:wsi:afexxx:v:11:y:2016:i:01:n:s2010495216500019
    DOI: 10.1142/S2010495216500019
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    2. Nguyen Huu Hau & Tran Trung Tinh & Hoa Anh Tuong & Wing-Keung Wong, 2020. "Review of Matrix Theory with Applications in Education and Decision Sciences," Advances in Decision Sciences, Asia University, Taiwan, vol. 24(1), pages 28-69, March.
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    More about this item

    Keywords

    Stochastic factor; optimal investment; additive background risk; multiplicative background risk; dynamic model;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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