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Dynamic Portfolio Selection Under Capital-At-Risk With No Short-Selling Constraints

Author

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  • GORDANA DMITRAŠINOVIĆ-VIDOVIĆ

    (Department of Mathematics and Statistics, University of Calgary, 2500 University Drive NW, Calgary, Alberta, T2N1N4, Canada)

  • ALI LARI-LAVASSANI

    (, 990 Biscayne Blvd Suite 503, Miami, Florida 33132, USA)

  • XUN LI

    (Department of Applied Mathematics, The Hong Kong Polytechnic University, Stanley Ho Building Hung Hom, Kowloon, Hong Kong)

  • ANTONY WARE

    (Department of Mathematics and Statistics, University of Calgary, 2500 University Drive NW, Calgary, Alberta, T2N1N4, Canada)

Abstract

Portfolio optimization under downside risk is of crucial importance to asset managers. In this article we consider one such particular measure given by the notion of Capital at Risk (CaR), closely related to Value at Risk. We consider portfolio optimization with respect to CaR in the Black-Scholes setting with time dependent parameters and investment strategies, i.e., continuous-time portfolio optimization. We review the results from our previous work in unconstrained portfolio optimization, and then investigate and solve the corresponding problems with the additional constraint of no-short-selling. Analytical formulae are derived for the optimal strategies, and numerical examples are presented.

Suggested Citation

  • Gordana Dmitrašinović-Vidović & Ali Lari-Lavassani & Xun Li & Antony Ware, 2011. "Dynamic Portfolio Selection Under Capital-At-Risk With No Short-Selling Constraints," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 14(06), pages 957-977.
    • Handle: RePEc:wsi:ijtafx:v:14:y:2011:i:06:n:s0219024911006802
    DOI: 10.1142/S0219024911006802
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    Cited by:

    1. Farzad Pourbabaee & Minsuk Kwak & Traian A. Pirvu, 2014. "Risk minimization and portfolio diversification," Papers 1411.6657, arXiv.org, revised Dec 2014.
    2. Farzad Pourbabaee & Minsuk Kwak & Traian A. Pirvu, 2016. "Risk minimization and portfolio diversification," Quantitative Finance, Taylor & Francis Journals, vol. 16(9), pages 1325-1332, September.

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