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

Aleš Černý, Fabio Maccheroni, Massimo Marinacci, Aldo Rustichini

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3 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 languageEnglish (US)
Pages (from-to)386-395
Number of pages10
JournalJournal of Mathematical Economics
Volume48
Issue number6
DOIs
StatePublished - 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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