A Simple Model of Robust Portfolio Selection

Taboga, Marco (2004): A Simple Model of Robust Portfolio Selection.

Abstract

We propose a single-period portfolio selection model which allows the decision maker to easily deal with uncertainty about the distribution of asset returns. The model is preference-based and relies upon a separate parametrization of risk aversion and ambiguity aversion. A particular specification of preferences allows us to solve the portfolio selection problem and obtain a simple closed-form expression for the portfolio weights, which lends itself to a straightforward economic interpretation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Portfolio selection; robustness; ambiguity.
• Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods

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