Worst-Case Portfolio Optimization under Stochastic Interest Rate Risk

Risks

Tina Engler²  Ralf Korn¹ 

[1] Department of Mathematics, University of Kaiserslautern, Germany and Financial Mathematics, Fraunhofer ITWM, Fraunhofer Platz 1, 67663 Kaiserslautern, Germany; E-Mail:;Department of Mathematics, Martin Luther University Halle-Wittenberg, 06099 Halle(Saale), Germany

关键词: portfolio optimization;    worst-case optimization;    stochastic interest rate;   

DOI  :  10.3390/risks2040469

来源: mdpi

【 摘 要 】

We investigate a portfolio optimization problem under the threat of a market crash, where the interest rate of the bond is modeled as a Vasicek process, which is correlated with the stock price process. We adopt a non-probabilistic worst-case approach for the height and time of the market crash. On a given time horizon , we then maximize the investor’s expected utility of terminal wealth in the worst-case crash scenario. Our main result is an explicit characterization of the worst-case optimal portfolio strategy for the class of HARA (hyperbolic absolute risk aversion) utility functions.

【 授权许可】

CC BY   
© 2014 by the authors; licensee MDPI, Basel, Switzerland.