Portfolio Optimization Under Generalized Hyperbolic Skewed t Distribution and Exponential Utility
John R. Birge
University of Chicago - Booth School of Business
Esan Graduate School of Business
March 28, 2014
In this paper, we show that if asset returns follow a generalized hyperbolic skewed t distribution, the investor has exponential utility function and a riskless asset is available, the optimal portfolio weights can be found either in closed-form or using a successive approximation scheme. We also derive lower bounds for the certainty equivalent return generated by the optimal portfolios. Finally, we present a study of the performance of mean-variance analysis and Taylor's series expected utility expansion (up to the fourth moment) to compute optimal portfolios in this framework.
Number of Pages in PDF File: 33
Keywords: Portfolio Optimization, asymmetrical distribution, utility maximization
JEL Classification: G11
Date posted: May 24, 2009 ; Last revised: June 14, 2014
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