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Optimal Investment with Risk Controlled by Weighted Entropic Risk Measures

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  • Jianming Xia

Abstract

A risk measure that is consistent with the second-order stochastic dominance and additive for sums of independent random variables can be represented as a weighted entropic risk measure (WERM). The expected utility maximization problem with risk controlled by WERM and a related risk minimization problem are investigated in this paper. The latter is same to a problem of maximizing a weighted average of constant-absolute-risk-aversion (CARA) certainty equivalents. The solutions of all the optimization problems are explicitly characterized and an iterative method of the solutions is provided.

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  • Jianming Xia, 2021. "Optimal Investment with Risk Controlled by Weighted Entropic Risk Measures," Papers 2112.02284, arXiv.org.
    • Handle: RePEc:arx:papers:2112.02284
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