Certainty Equivalent in Portfolio Management
In portfolio selection, strategies on an efficient frontier have been regarded as non dominated solutions because of the compensation to each increase unit of risk, and a rational de cision maker has to consider other supplementary decision rules. This paper proposes an approach that helps a rational decision maker identify the best candidate strategy on an efficient frontier by taking the concept of certainty equivalent from decision analysis. It is shown that by integrating the efficient frontier and an approximation of certainty equivalent based on the widely used expo nential utility function in the same coordinate plane, we are able to derive an analytical solution to the optimal strategy, and thus develop an efficient selecting procedure that can significantly reduce the computational load as a result of the necessary comparisons between only one or two candidate portfolios.
portfolio selection efficient frontier certainty equivalent quadratic programming
Xiao-Song Ding Xi Chen Ji-Hong Zhang
School of International Business, Beijing Foreign Studies University, Beijing 100089
国际会议
张家界
英文
115-123
2009-09-20（万方平台首次上网日期，不代表论文的发表时间）