Optimal Portfolio Choice with Benchmarks

35 Pages Posted: 21 Jun 2017 Last revised: 2 Nov 2017

Carole Bernard

Grenoble Ecole de Management; Vrije Universiteit Brussel (VUB)

Rob De Staelen

Ghent University-Universiteit Gent

Steven Vanduffel

Vrije Universiteit Brussel (VUB)

Date Written: May 10, 2017

Abstract

We construct an algorithm that makes it possible to numerically obtain an investor’s optimal portfolio under general preferences. In particular, the objective function and risks constraints may be driven by benchmarks (reflecting state-dependent preferences). We apply the algorithm to various classic optimal portfolio problems for which explicit solutions are available and show that our numerical solutions are compatible with them. This observation allows us to conclude that the algorithm can be trusted as a viable way to deal with portfolio optimization problems for which explicit solutions are not in reach.

Keywords: optimal portfolio, algorithm, law-invariant, distortion, utility, GOP, cost-efficiency, state-dependent preferences, discrete optimization

Suggested Citation

Bernard, Carole and De Staelen, Rob and Vanduffel, Steven, Optimal Portfolio Choice with Benchmarks (May 10, 2017). Available at SSRN: https://ssrn.com/abstract=2957805 or http://dx.doi.org/10.2139/ssrn.2957805

Carole Bernard (Contact Author)

Grenoble Ecole de Management ( email )

12, rue Pierre Sémard
Grenoble Cedex, 38003
France

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

Rob De Staelen

Ghent University-Universiteit Gent ( email )

Coupure Links 653
Gent, 9000
Belgium

Steven Vanduffel

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
Brussels, Brabant 1050
Belgium

HOME PAGE: http://www.stevenvanduffel.com

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