Dynamic portfolio selection with mispricing and model ambiguity
type: Item
instance of: scholarly article
title: Dynamic portfolio selection with mispricing and model ambiguity
zbMATH Open document ID: 1311.91176
author: Bo Yi
author: Frederi Viens
author: Baron Law
author: Zhongfei Li
published in: Annals of Finance
publication date: 2015-03-24T00:00:00Z
review text: The authors introduce a financial market model with mispriced stocks. A robust problem for an ambiguity-averse investor with constant relative risk aversion utility is presented and solved under the market with mispricing and constant risk premium. They investigate the robust optimal strategies under observed and unobserved mean-reverting stochastic risk premium. Finally, they provide empirical examples and discuss the utility losses for ignoring mispricing and ignoring ambiguity: the optimal strategy is dependent on the liquidity parameters for stocks, which are very difficult to estimate. Thus, a wise investor should consider ambiguity on the mispricing model when making decisions about investing in the mispriced assets.
Mathematics Subject Classification ID: 91G10
zbMATH DE Number: 6419182
zbMATH Keywords: portfolio selection
zbMATH Keywords: model ambiguity
zbMATH Keywords: mispricing
zbMATH Keywords: stochastic risk premium
zbMATH Keywords: robust control
zbMATH Keywords: utility maximization
reviewed by: George Stoica
MaRDI profile type: Publication
full work available at URL: s10436-014-0252-y
OpenAlex ID: W2054758569
cites work: Risk minimizing portfolios and HJBI equations for stochastic differential games
cites work: Q3997913
cites work: Robust portfolio rules and detection-error probabilities for a mean-reverting risk premium
cites work: Q4388221
cites work: On the verification theorem of dynamic portfolio-consumption problems with stochastic market price of risk
cites work: Robust optimal control for an insurer with reinsurance and investment under Heston's stochastic volatility model
cites work: Q4039796
cites work: Q4522401
cites work: Robust consumption and portfolio choice for time varying investment opportunities
cites work: Continuous Markov processes and stochastic equations
cites work: Portfolio management with stochastic interest rates and inflation ambiguity
DOI: 10.1007/S10436-014-0252-Y
description: scientific article; zbMATH DE number 6419182