Expected utility theory is nowadays accepted as the standard for rational choice among risky assets. However, as Harry Markowitz recently pointed out, the problem of how the maximum expected utility along the risk–return portfolio efficient frontiers approximates the exact maximum expected utility is still open. This paper shows that some popular risk–return models are actually able to approximate expected utility maximization with respect to classical and new distance measures. It also analyzes the ability of the whole risk–return efficient frontiers to approximate the exact one. Our empirical analysis is based on recent publicly available real-world data sets.

Carleo, A., Cesarone, F., Gheno, A., & Ricci Jacopo Maria, (2017). Approximating exact expected utility via portfolio efficient frontiers. DECISIONS IN ECONOMICS AND FINANCE, 40(1-2), 115-143 [10.1007/s10203-017-0201-0].

Approximating exact expected utility via portfolio efficient frontiers

Carleo Alessandra;Cesarone Francesco;Gheno Andrea;Ricci Jacopo Maria
2017

Abstract

Expected utility theory is nowadays accepted as the standard for rational choice among risky assets. However, as Harry Markowitz recently pointed out, the problem of how the maximum expected utility along the risk–return portfolio efficient frontiers approximates the exact maximum expected utility is still open. This paper shows that some popular risk–return models are actually able to approximate expected utility maximization with respect to classical and new distance measures. It also analyzes the ability of the whole risk–return efficient frontiers to approximate the exact one. Our empirical analysis is based on recent publicly available real-world data sets.
Carleo, A., Cesarone, F., Gheno, A., & Ricci Jacopo Maria, (2017). Approximating exact expected utility via portfolio efficient frontiers. DECISIONS IN ECONOMICS AND FINANCE, 40(1-2), 115-143 [10.1007/s10203-017-0201-0].
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11590/327358
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 8
  • ???jsp.display-item.citation.isi??? 7
social impact