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Optimal Portfolios with Bounded Capital at Risk
Author(s) -
Emmer Susanne,
Klüppelberg Claudia,
Korn Ralf
Publication year - 2001
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/1467-9965.00121
Subject(s) - portfolio , economics , bounded function , constraint (computer aided design) , upper and lower bounds , capital (architecture) , econometrics , mathematics , mathematical economics , variance (accounting) , mathematical optimization , financial economics , mathematical analysis , geometry , accounting , archaeology , history
We consider some continuous‐time Markowitz type portfolio problems that consist of maximizing expected terminal wealth under the constraint of an upper bound for the capital at risk. In a Black–Scholes setting we obtain closed‐form explicit solutions and compare their form and implications to those of the classical continuous‐time mean‐variance problem. We also consider more general price processes that allow for larger fluctuations in the returns.