Portfolio Management With Constraints

25 Pages Posted: 28 Jun 2007

See all articles by Weidong Tian

Weidong Tian

University of North Carolina (UNC) at Charlotte - The Belk College of Business Administration

Phelim P. Boyle

Wilfrid Laurier University - School of Business & Economics; University of Waterloo

Abstract

The traditional portfolio selection problem concerns an agent whose objective is to maximize the expected utility of terminal wealth over some horizon. This basic problem can be modified by adding constraints. In this paper we investigate the portfolio selection problem for an investor who desires to outperform some benchmark index with a certain confidence level. The benchmark is chosen to reflect some particular investment objective and it can be either deterministic or stochastic. The optimal strategy for this class of problems can lead to nonconvex constraints raising issues of existence and uniqueness. We solve this optimal portfolio selection problem and investigate the procedure for both deterministic and stochastic benchmarks.

Suggested Citation

Tian, Weidong and Boyle, Phelim P., Portfolio Management With Constraints. Mathematical Finance, Vol. 17, No. 3, pp. 319-343, July 2007, Available at SSRN: https://ssrn.com/abstract=997162 or http://dx.doi.org/10.1111/j.1467-9965.2007.00306.x

Weidong Tian

University of North Carolina (UNC) at Charlotte - The Belk College of Business Administration ( email )

9201 University City Boulevard
Charlotte, NC 28223-0001
United States

HOME PAGE: http://belkcollegeofbusiness.uncc.edu/wtian1/

Phelim P. Boyle (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada
519 884 1970 (Phone)
519 888 1015 (Fax)

University of Waterloo

Waterloo, Ontario N2L 3G1
Canada

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