Tuesday, November 8th @ 11:00-12:30 PM (639 Evans Hall)
Portfolio selection: Capital at risk minimization under correlation constraint
Farzad Pourbabaee, UC Berkeley
We studied the portfolio optimization problem in the Black-Scholes setup, subject to certain constraints. Capital at Risk (CaR) has turned out to resolve many of the shortcomings of the Value at Risk, hence is taken in this presentation as the objective of the optimization problem. Then, the CaR minimizing portfolio is found under a general correlation constraint between the terminal value of the wealth and an arbitrary financial index. Results are derived from both incomplete and incomplete markets, and finally, simulations are performed to present the qualitative behavior of the optimal portfolio. http://www.tandfonline.com/doi/abs/10.1080/14697688.2015.1115891