Work

Optimal investment based on relative performance and time-varying reference point under VaR and position constraints

Year: 2024

Type: article

Abstract: We consider the utility maximization problem from the point of view of a portfolio manager who is paid by an incentive scheme, which is given as a function of the terminal relative performance wealth. The investment manager bases decisions on the terminal payoff comparison to a time-varying reference point. We find the optimal investment strategy by maximizing an S-shaped utility under a VaR and position constraints via a concavification technique and the martingale method. Numerical results are carried out to show the impacts of the incentive scheme and the time-varying reference point on the optimal terminal relative performance.

Source: Journal of Industrial and Management Optimization

DOI: 10.3934/jimo.2024144

Authors: Yinghui Dong, Ying Gao, Chunrong Hua

Institutions: Suzhou University of Science and Technology, Suzhou University of Technology

Language: English

Topic: Risk and Portfolio Optimization

Subfield: Management Science and Operations Research

Field: Decision Sciences

Domain: Social Sciences

Open Access status: diamond

OpenAlex ID: W4403548918

FWCI: 0.316

Cites: 15

Cited by: 1

Related to: 10