w-MPS risk aversion and continuous-time MV analysis in presence of Lévy jumps

Issue title: Computational Techniques in Finance

Article type: Research Article

Authors: Ma, Chenghu

Affiliations: School of Management, Fudan University, Shanghai, China. E-mail: [email protected]

Abstract: This paper is on sequential portfolio choices by w-MPS risk averse investors in a continuous time jump-diffusion framework. The performance process is characterized as a solution to a partial differential and integro-equation, and the optimal portfolio holding is shown to belong to a newly derived ‘temporal efficient frontier’ (t.e.f.). Qualitative properties of the t.e.f. are studied, in addition to some interesting connections with the static instantaneous efficient frontier. The paper also sheds light on the difference between w-MPS risk averse investors and the expected utility investors concerning their trading bahaviour.

Keywords: w-MPS risk aversion, sequential portfolio choice, temporal mean–variance analysis

DOI: 10.3233/RDA-2011-0043

Journal: Risk and Decision Analysis, vol. 2, no. 4, pp. 221-236, 2011