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PORTFOLIO MANAGEMENT WITH CONSTRAINTS
Author(s) -
Boyle Phelim,
Tian Weidong
Publication year - 2007
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/j.1467-9965.2007.00306.x
Subject(s) - portfolio , benchmark (surveying) , mathematical optimization , selection (genetic algorithm) , uniqueness , project portfolio management , computer science , class (philosophy) , portfolio optimization , investment strategy , separation property , index (typography) , economics , mathematical economics , replicating portfolio , mathematics , microeconomics , artificial intelligence , finance , profit (economics) , mathematical analysis , management , geodesy , project management , world wide web , geography
The traditional portfolio selection problem concerns an agent whose objective is to maximize the expected utility of terminal wealth over some horizon. This basic problem can be modified by adding constraints. In this paper we investigate the portfolio selection problem for an investor who desires to outperform some benchmark index with a certain confidence level. The benchmark is chosen to reflect some particular investment objective and it can be either deterministic or stochastic. The optimal strategy for this class of problems can lead to nonconvex constraints raising issues of existence and uniqueness. We solve this optimal portfolio selection problem and investigate the procedure for both deterministic and stochastic benchmarks.