Optimal Investment with Risk Controlled by Weighted Entropic Risk Measures
Mathematical Finance
2021-12-07 v1 Risk Management
Abstract
A risk measure that is consistent with the second-order stochastic dominance and additive for sums of independent random variables can be represented as a weighted entropic risk measure (WERM). The expected utility maximization problem with risk controlled by WERM and a related risk minimization problem are investigated in this paper. The latter is same to a problem of maximizing a weighted average of constant-absolute-risk-aversion (CARA) certainty equivalents. The solutions of all the optimization problems are explicitly characterized and an iterative method of the solutions is provided.
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Cite
@article{arxiv.2112.02284,
title = {Optimal Investment with Risk Controlled by Weighted Entropic Risk Measures},
author = {Jianming Xia},
journal= {arXiv preprint arXiv:2112.02284},
year = {2021}
}
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33 pages