Ambiguity and Optimal Portfolio Choice with Value-at-Risk Constraint

Posted: 10 May 2014 Last revised: 8 Apr 2016

See all articles by Bong-Gyu Jang

Bong-Gyu Jang

Pohang University of Science and Technology (POSTECH)

Seyoung Park

Nottingham University Business School

Date Written: September 21, 2015

Abstract

Integrating a Value-at-Risk constraint on a fund manager's wealth and ambiguity, we present a model of optimal portfolio choice for a fund manager who allocates her wealth between risky and riskless assets. When a fund manager controls asset composition, her reactions di er with respect to an increase in only risk aversion and only ambiguity aversion. When the sum of coecients of risk aversion and ambiguity aversion is fixed, the effect of risk aversion on risky investment dominates the effect of ambiguity aversion in that stock holdings are dramatically smaller in the absence of ambiguity aversion than in its presence.

Keywords: ambiguity aversion, optimal portfolio, value at risk, expected shortfall, fund management

JEL Classification: C61, G11, G12

Suggested Citation

Jang, Bong-Gyu and Park, Seyoung, Ambiguity and Optimal Portfolio Choice with Value-at-Risk Constraint (September 21, 2015). Finance Research Letters, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2435005 or http://dx.doi.org/10.2139/ssrn.2435005

Bong-Gyu Jang (Contact Author)

Pohang University of Science and Technology (POSTECH) ( email )

77 Cheongam-ro
Pohang
Korea, Republic of (South Korea)

Seyoung Park

Nottingham University Business School ( email )

Nottingham University Business School
Jubilee Campus
Nottingham
United Kingdom
+44-7927-494518 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
1,170
PlumX Metrics