Ambiguity and optimal portfolio choice with Value-at-Risk constraint

Jang, Bong-Gyu; Park, Seyoung

Park_AOPC_VAR_Manuscript_revision_FRL.pdf (483.09 kB)

Ambiguity and optimal portfolio choice with Value-at-Risk constraint

journal contribution

posted on 2017-11-20, 09:31 authored by Bong-Gyu Jang, Seyoung Park

© 2016 Elsevier Inc. Integrating a Value-at-Risk constraint on a fund manager's wealth and ambiguity, we present a model of optimal portfolio choice for a fund manager who allocates her wealth between risky and riskless assets. When a fund manager controls asset composition, her reactions differ with respect to an increase in only risk aversion and only ambiguity aversion. When the sum of coefficients of risk aversion and ambiguity aversion is fixed, the effect of risk aversion on risky investment dominates the effect of ambiguity aversion in that stock holdings are dramatically smaller in the absence of ambiguity aversion than in its presence.

Funding

This research in the paper is supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2013R1A2A2A03068890 , NRF- 2014S1A3A2036037 ).

History

School

Business and Economics

Department

Business

Published in

Finance Research Letters

Volume

18

Pages

158 - 176

Citation

JANG, B-G. and PARK, S., 2016. Ambiguity and optimal portfolio choice with Value-at-Risk constraint. Finance Research Letters, 18, pp. 158-176.

Publisher

Version

AM (Accepted Manuscript)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Acceptance date

2016-08-03

Publication date

2016

Notes

This paper was accepted for publication in the journal Finance Research Letters and the definitive published version is available at https://doi.org/10.1016/j.frl.2016.04.013