A General Optimal Investment Model in the Presence of Background Risk

Alghalith, Moawia and Guo, Xu and Wong, Wing-Keung and Zhu, Lixing (2016): A General Optimal Investment Model in the Presence of Background Risk.

Abstract

In this paper we present two dynamic models of background risk. We first present a stochastic factor model with an additive background risk. Thereafter, we present a dynamic model of simultaneous (correlated) multiplicative background risk and additive background risk. In so doing, we use a general utility function.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stochastic factor model, utility function
• Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions

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