A Portfolio Decomposition Formula
Probability
2008-12-02 v1 Optimization and Control
Portfolio Management
Abstract
This paper derives a portfolio decomposition formula when the agent maximizes utility of her wealth at some finite planning horizon. The financial market is complete and consists of multiple risky assets (stocks) plus a risk free asset. The stocks are modelled as exponential Brownian motions with drift and volatility being Ito processes. The optimal portfolio has two components: a myopic component and a hedging one. We show that the myopic component is robust with respect to stopping times. We employ the Clark-Haussmann formula to derive portfolio s hedging component.
Keywords
Cite
@article{arxiv.math/0702726,
title = {A Portfolio Decomposition Formula},
author = {Traian A Pirvu and Ulrich G Haussmann},
journal= {arXiv preprint arXiv:math/0702726},
year = {2008}
}