MAXIMIZING THE GROWTH RATE UNDER RISK CONSTRAINTS
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Publication:3393979
DOI10.1111/J.1467-9965.2009.00378.XzbMATH Open1168.91398arXiv0706.0480OpenAlexW2265464138MaRDI QIDQ3393979FDOQ3393979
Authors: Traian A. Pirvu, Gordan Žitković 
Publication date: 28 August 2009
Published in: Mathematical Finance (Search for Journal in Brave)
Abstract: We investigate the ergodic problem of growth-rate maximization under a class of risk constraints in the context of incomplete, It^{o}-process models of financial markets with random ergodic coefficients. Including {em value-at-risk} (VaR), {em tail-value-at-risk} (TVaR), and {em limited expected loss} (LEL), these constraints can be both wealth-dependent(relative) and wealth-independent (absolute). The optimal policy is shown to exist in an appropriate admissibility class, and can be obtained explicitly by uniform, state-dependent scaling down of the unconstrained (Merton) optimal portfolio. This implies that the risk-constrained wealth-growth optimizer locally behaves like a CRRA-investor, with the relative risk-aversion coefficient depending on the current values of the market coefficients.
Full work available at URL: https://arxiv.org/abs/0706.0480
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stochastic controlvalue-at-riskergodic controlmathematical financeportfolio constraintstail value-at-riskgrowth-optimal portfolio
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