1. Expected utility maximization and conditional value-at-risk deviation-based Sharpe ratio in dynamic stochastic portfolio optimization
- Creator:
- Kilianová, Soňa and Ševčovič, Daniel
- Format:
- bez média and svazek
- Type:
- model:article and TEXT
- Subject:
- dynamic stochastic portfolio optimization, Hamilton-Jacobi-Bellman equation, Conditional value-at-risk, CVaRD-based Sharpe ratio, and CVaRD-based Sharpe ratio
- Language:
- English
- Description:
- In this paper we investigate the expected terminal utility maximization approach for a dynamic stochastic portfolio optimization problem. We solve it numerically by solving an evolutionary Hamilton-Jacobi-Bellman equation which is transformed by means of the Riccati transformation. We examine the dependence of the results on the shape of a chosen utility function in regard to the associated risk aversion level. We define the Conditional value-at-risk deviation (CVaRD) based Sharpe ratio for measuring risk-adjusted performance of a dynamic portfolio. We compute optimal strategies for a portfolio investment problem motivated by the German DAX 30 Index and we evaluate and analyze the dependence of the CVaRD-based Sharpe ratio on the utility function and the associated risk aversion level.
- Rights:
- http://creativecommons.org/publicdomain/mark/1.0/ and policy:public