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Huyên PHAM (Université Paris Diderot & CREST) – “Portfolio Diversification and Model Uncertainty: a Robust Dynamic Mean-Variance Approach”

June 4, 3:30 pm - 4:30 pm

1st Monday of each month

Time: 3:30 pm – 4:30 pm
Date: 04 th of June 2018
Place: Room 3105

Huyên PHAM (Université Paris Diderot & CREST) – “Portfolio Diversification and Model Uncertainty: a Robust Dynamic Mean-Variance Approach”

Abstract: This talk is concerned with  multi-asset mean-variance portfolio selection problem under model uncertainty. We develop a continuous time framework for taking into account ambiguity aversion about both expected rate of return and correlation matrix of stocks, and for studying the effects on portfolio diversification. We prove a  separation principle for the associated robust control problem, which  allows to reduce the determination of the optimal dynamic strategy to the parametric computation of the minimal risk premium function. Our results provide a justification for  under-diversification, as documented in empirical studies, and  that we explicitly quantify  in terms of correlation and Sharpe ratio ambiguity parameters.  In particular, we show that an investor with a poor confidence in the expected return estimation does not hold any risky asset, and on the other hand, trades only  one risky asset when the level of ambiguity on correlation matrix is large.  This extends to the continuous-time setting  the results  obtained by Garlappi, Uppal and Wang [RFS 07], and  Liu and Zeng (2017)  in a one-period model.

Based on joint work with X. Wei (Paris Diderot) and Chao Zhou (NUS).

 

Details

Date:
June 4
Time:
3:30 pm - 4:30 pm
Event Categories:
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Organizers

Caroline HILLAIRET
Peter TANKOV