On the computation of optimal monotone mean-variance portfolios via truncated quadratic utility

Aleš Černý; Fabio Maccheroni; Massimo Marinacci; Aldo Rustichini

doi:10.1016/j.jmateco.2012.08.006

On the computation of optimal monotone mean-variance portfolios via truncated quadratic utility

Aleš Černý, Fabio Maccheroni, Massimo Marinacci, Aldo Rustichini

Economics (Twin Cities)

Research output: Contribution to journal › Article › peer-review

4 Scopus citations

Abstract

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.

Original language	English (US)
Pages (from-to)	386-395
Number of pages	10
Journal	Journal of Mathematical Economics
Volume	48
Issue number	6
DOIs	https://doi.org/10.1016/j.jmateco.2012.08.006
State	Published - Dec 2012

Bibliographical note

Funding 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.

Keywords

Divergence preferences
HARA utility
Monotone hull
Monotone mean-variance preferences
Optimal portfolio
Translation-invariant hull
Truncated quadratic utility

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10.1016/j.jmateco.2012.08.006

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title = "On the computation of optimal monotone mean-variance portfolios via truncated quadratic utility",

abstract = "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 {\v C}ern{\'y}, 2003) to the optimal monotone mean-variance portfolios (see Maccheroni etal., 2009), thus simplifying the computation of the latter.",

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note = "Funding 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. ",

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AU - Černý, Aleš

AU - Maccheroni, Fabio

AU - Marinacci, Massimo

AU - Rustichini, Aldo

N1 - Funding 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.

PY - 2012/12

Y1 - 2012/12

N2 - 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.

AB - 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.

KW - Divergence preferences

KW - HARA utility

KW - Monotone hull

KW - Monotone mean-variance preferences

KW - Optimal portfolio

KW - Translation-invariant hull

KW - Truncated quadratic utility

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On the computation of optimal monotone mean-variance portfolios via truncated quadratic utility

Abstract

Bibliographical note

Keywords

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