MAXIMIZING THE GROWTH RATE UNDER RISK CONSTRAINTS

DOI10.1111/J.1467-9965.2009.00378.XMaRDI QIDQ3393979zbMATHOpenAlexFDO

Authors Traian A. Pirvu, Gordan Žitković

Publication date 28 August 2009

Published in Mathematical Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0706.0480

zbMATH Keywords

stochastic controlvalue-at-riskergodic controlmathematical financeportfolio constraintstail value-at-riskgrowth-optimal portfolio

Mathematics Subject Classification ID

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.

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• Optimal capital growth with convex shortfall penalties
• Dynamic portfolio selection under capital-at-risk with no short-selling constraints
• Robust portfolio selection under recovery average value at risk
• THE NUMÉRAIRE PROPERTY AND LONG-TERM GROWTH OPTIMALITY FOR DRAWDOWN-CONSTRAINED INVESTMENTS
• Maximizing survival, growth and goal reaching under borrowing constraints
• Growth optimal portfolio insurance in continuous and discrete time

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