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The Exact Solution of Multi-period Portfolio Choice Problem with Exponential Utility
Stockholm University, Faculty of Science, Department of Mathematics.
2016 (English)In: Operations Research Proceedings 2014: Selected Papers of the Annual International Conference of the German Operations Research Society (GOR), RWTH Aachen University, Germany, September 2-5, 2014 / [ed] Marco Lübbecke, Arie Koster, Peter Letmathe, Reinhard Madlener, Britta Peis, Grit Walther, Springer, 2016, 45-51 p.Chapter in book (Refereed)
Abstract [en]

In the current paper we derive the exact analytical solution of the multiperiod portfolio choice problem for an exponential utility function. It is assumed that the asset returns depend on predictable variables and that the joint random process of the asset returns follows a vector autoregression. We prove that the optimal portfolio weights depend on the covariance matrices of the next two periods and the conditional mean vector of the next period. The case without predictable variables and the case of independent asset returns are partial cases of our solution.

Place, publisher, year, edition, pages
Springer, 2016. 45-51 p.
Series
Operations Research Proceedings
Keyword [en]
Multi-period portfolio, Exponential utility, Analytical solution
National Category
Probability Theory and Statistics Economics
Identifiers
URN: urn:nbn:se:su:diva-128384DOI: 10.1007/978-3-319-28697-6_7ISBN: 978-3-319-28695-2 (print)ISBN: 978-3-319-28697-6 (print)OAI: oai:DiVA.org:su-128384DiVA: diva2:914685
Available from: 2016-03-24 Created: 2016-03-24 Last updated: 2016-05-12Bibliographically approved

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