Risk minimization and portfolio diversification
Portfolio Management
2014-12-16 v2 Optimization and Control
Abstract
We consider the problem of minimizing capital at risk in the Black-Scholes setting. The portfolio problem is studied given the possibility that a correlation constraint between the portfolio and a financial index is imposed. The optimal portfolio is obtained in closed form. The effects of the correlation constraint are explored; it turns out that this portfolio constraint leads to a more diversified portfolio.
Keywords
Cite
@article{arxiv.1411.6657,
title = {Risk minimization and portfolio diversification},
author = {Farzad Pourbabaee and Minsuk Kwak and Traian A. Pirvu},
journal= {arXiv preprint arXiv:1411.6657},
year = {2014}
}