Journal
QUANTITATIVE FINANCE
Volume 7, Issue 4, Pages 435-442Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
DOI: 10.1080/14697680701455410
Keywords
portfolio optimization; robustness; minimax
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In this paper, we consider the problem of finding optimal portfolios in cases when the underlying probability model is not perfectly known. For the sake of robustness, a maximin approach is applied which uses a 'confidence set' for the probability distribution. The approach shows the tradeoff between return, risk and robustness in view of the model ambiguity. As a consequence, a monetary value of information in the model can be determined.
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