Fri, 06 Dec 2013
16:00 -
17:00
L4
Worst-Case Portfolio Optimization: Concept and Recent Results
Ralf Korn
(Technische Universität Kaiserslautern)
Abstract
Worst-case portfolio optimization has been introduced in Korn and Wilmott
(2002) and is based on distinguishing between random stock price
fluctuations and market crashes which are subject to Knightian
uncertainty. Due to the absence of full probabilistic information, a
worst-case portfolio problem is considered that will be solved completely.
The corresponding optimal strategy is of a multi-part type and makes an
investor indifferent between the occurrence of the worst possible crash
and no crash at all.
We will consider various generalizations of this setting and - as a very
recent result - will in particular answer the question "Is it good to save
for bad times or should one consume more as long as one is still rich?"