We report a surprising link between optimal portfolios generated by a special type of variational preferences called divergence preferences (see Maccheroni etal., 2006) and optimal portfolios generated by classical expected utility. As a special case, we connect optimization of truncated quadratic utility (see Černý, 2003) to the optimal monotone mean-variance portfolios (see Maccheroni etal., 2009), thus simplifying the computation of the latter.
Bibliographical noteFunding Information:
We wish to thank an Associate Editor and an anonymous referee for very useful comments. Part of this research was done while the first two authors were visiting the Collegio Carlo Alberto, which they thank for its hospitality. The financial support of the European Research Council (advanced grant BRSCDP-TEA) is gratefully acknowledged.
- Divergence preferences
- HARA utility
- Monotone hull
- Monotone mean-variance preferences
- Optimal portfolio
- Translation-invariant hull
- Truncated quadratic utility