Multi-period portfolio optimization under probabilistic risk measure

•Our paper provides a computationally simple analytical solution to the complex portfolio selection problem in a multi-period setting.•Probabilistic risk measure can cater for investors with different degree of risk aversion.•In our settings, the investors do not have to purchase a huge number of st...

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Bibliographic Details
Published in:Finance research letters 2016-08, Vol.18, p.60-66
Main Authors: Sun, Yufei, Aw, Grace, Teo, Kok Lay, Zhu, Yanjian, Wang, Xiangyu
Format: Article
Language:English
Subjects:
Decision making models
Discrete-time optimal control
Dynamic programming
Investment policy
Numerical analysis
Portfolio investments
Portfolio optimization
Probability risk measure
Risk assessment
Simulation
Studies
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Summary:•Our paper provides a computationally simple analytical solution to the complex portfolio selection problem in a multi-period setting.•Probabilistic risk measure can cater for investors with different degree of risk aversion.•In our settings, the investors do not have to purchase a huge number of stocks to form an optimal portfolio.•Our model is superior over its corresponding single period one, as well as over the market index. This paper develops a minimax model for a multi-period portfolio selection problem. An analytical solution is obtained and numerical simulations demonstrate the superiority of the multi-period model over its corresponding single period one, as well as over the market index.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2016.04.001