Dynamic mean-risk optimization in a binomial model

Original Article

DOI: 10.1007/s00186-008-0267-0

Cite this article as:
Bäuerle, N. & Mundt, A. Math Meth Oper Res (2009) 70: 219. doi:10.1007/s00186-008-0267-0

Abstract

We consider a dynamic mean-risk problem, where the risk constraint is given by the Average Value–at–Risk. As financial market we choose a discrete-time binomial model which allows for explicit solutions. Problems where the risk constraint on the final wealth is replaced by intermediate risk constraints are also considered. The problems are solved with the help of the theory of Markov decision models and a Lagrangian approach.

Keywords

Average Value–at–Risk Markov decision model Binomial financial market 

Mathematics Subject Classification (2000)

91B30 49L20 93E20 

Copyright information

© Springer-Verlag 2008

Authors and Affiliations

  1. 1.Institut für StochastikUniversität Karlsruhe (TH)KarlsruheGermany