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Optimal portfolio positioning under ambiguity

Author

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  • Jean-Luc Prigent

    (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)

  • H. Ben Ameur
  • J.L. Prigent

Abstract

This paper analyzes the optimality of financial portfolios when the investor has a utility with ambiguity aversion. It provides a general result about the optimal portfolio profile under ambiguity, in the Anscombe–Aumann framework, using the Maccheroni et al. (2006) approach which includes Gilboa and Schmeidler's (1989) multiple prior preferences and Hansen and Sargent's (2011) multiplier preferences. The paper then details the CRRA case with an ambiguity index based on relative entropy. Such findings have practical applications in structured portfolio management. Indeed, it is important to take account of uncertainty about the true values of financial parameters when determining the best portfolio profile.
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Suggested Citation

  • Jean-Luc Prigent & H. Ben Ameur & J.L. Prigent, 2013. "Optimal portfolio positioning under ambiguity," Post-Print hal-03679709, HAL.
    • Handle: RePEc:hal:journl:hal-03679709
    DOI: 10.1016/j.econmod.2012.12.005
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    References listed on IDEAS

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    Cited by:

    1. Branger, Nicole & Mahayni, Antje & Zieling, Daniel, 2015. "Robustness of stable volatility strategies," Journal of Economic Dynamics and Control, Elsevier, vol. 60(C), pages 134-151.
    2. Pfiffelmann, Marie & Roger, Tristan & Bourachnikova, Olga, 2016. "When Behavioral Portfolio Theory meets Markowitz theory," Economic Modelling, Elsevier, vol. 53(C), pages 419-435.
    3. Hachmi Ben Ameur & Mouna Boujelbène & J. L. Prigent & Emna Triki, 2020. "Optimal Portfolio Positioning on Multiple Assets Under Ambiguity," Computational Economics, Springer;Society for Computational Economics, vol. 56(1), pages 21-57, June.
    4. Hentati-Kaffel, R. & Prigent, J.-L., 2016. "Optimal positioning in financial derivatives under mixture distributions," Economic Modelling, Elsevier, vol. 52(PA), pages 115-124.
    5. Mkaouar, Farid & Prigent, Jean-Luc & Abid, Ilyes, 2017. "Long-term investment with stochastic interest and inflation rates: The need for inflation-indexed bonds," Economic Modelling, Elsevier, vol. 67(C), pages 228-247.
    6. Tarik Driouchi & Lenos Trigeorgis & Raymond H. Y. So, 2018. "Option implied ambiguity and its information content: Evidence from the subprime crisis," Annals of Operations Research, Springer, vol. 262(2), pages 463-491, March.
    7. Hentati-Kaffel, Rania, 2016. "Structured products under generalized kappa ratio," Economic Modelling, Elsevier, vol. 58(C), pages 599-614.
    8. Luo, Deqing & Shan, Xun & Yan, Jingzhou & Yan, Qianhui, 2023. "Sustainable investment under ESG volatility and ambiguity," Economic Modelling, Elsevier, vol. 128(C).
    9. Hakan Kaya, 2017. "Managing ambiguity in asset allocation," Journal of Asset Management, Palgrave Macmillan, vol. 18(3), pages 163-187, May.
    10. Viviani, Jean-Laurent & Lai, Anh-Ngoc & Louhichi, Waël, 2018. "The impact of asymmetric ambiguity on investment and financing decisions," Economic Modelling, Elsevier, vol. 69(C), pages 169-180.

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    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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