Abstract
We need to solve a multi-period optimization problem to decide dynamic investment policies under various practical constraints. Hibiki (2001,2003,2006) develop a hybrid model where conditional ecisions can be made in a simulation approach, and investment proportions are expressed by a step function of the amount of wealth. In this paper, we introduce an idea of a state-dependent function into the hybrid model as well as Takaya and Hibiki (2012). At first, we define the state-dependent function form for a multiple asset allocation problem with CVaR (Conditional Value at Risk) using the hybrid model, and we clarify that the function form is V-shaped and kinked at the VaR point. We propose a piecewise linear model with the V-shaped function to solve the multi-period and state-dependent asset allocation problem. We solve a three-period problem for five assets, and compare the piecewise linear model with the hybrid model. We conduct the sensitivity analysis for different risk averse coefficients and autocorrelations to examine the characteristics of the model.
| Original language | English |
|---|---|
| Pages (from-to) | 307-329 |
| Number of pages | 23 |
| Journal | Journal of the Operations Research Society of Japan |
| Volume | 58 |
| Issue number | 4 |
| Publication status | Published - 2015 |
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Keywords
- Finance
- Multi-period asset allocation
- Simulation
- Stochastic optimization
ASJC Scopus subject areas
- Management Science and Operations Research
- Decision Sciences(all)
Cite this
Multi-period stochastic programming model for state-dependent asset allocation with CVaR. / Hirano, Shinya; Hibiki, Norio.
In: Journal of the Operations Research Society of Japan, Vol. 58, No. 4, 2015, p. 307-329.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Multi-period stochastic programming model for state-dependent asset allocation with CVaR
AU - Hirano, Shinya
AU - Hibiki, Norio
PY - 2015
Y1 - 2015
N2 - We need to solve a multi-period optimization problem to decide dynamic investment policies under various practical constraints. Hibiki (2001,2003,2006) develop a hybrid model where conditional ecisions can be made in a simulation approach, and investment proportions are expressed by a step function of the amount of wealth. In this paper, we introduce an idea of a state-dependent function into the hybrid model as well as Takaya and Hibiki (2012). At first, we define the state-dependent function form for a multiple asset allocation problem with CVaR (Conditional Value at Risk) using the hybrid model, and we clarify that the function form is V-shaped and kinked at the VaR point. We propose a piecewise linear model with the V-shaped function to solve the multi-period and state-dependent asset allocation problem. We solve a three-period problem for five assets, and compare the piecewise linear model with the hybrid model. We conduct the sensitivity analysis for different risk averse coefficients and autocorrelations to examine the characteristics of the model.
AB - We need to solve a multi-period optimization problem to decide dynamic investment policies under various practical constraints. Hibiki (2001,2003,2006) develop a hybrid model where conditional ecisions can be made in a simulation approach, and investment proportions are expressed by a step function of the amount of wealth. In this paper, we introduce an idea of a state-dependent function into the hybrid model as well as Takaya and Hibiki (2012). At first, we define the state-dependent function form for a multiple asset allocation problem with CVaR (Conditional Value at Risk) using the hybrid model, and we clarify that the function form is V-shaped and kinked at the VaR point. We propose a piecewise linear model with the V-shaped function to solve the multi-period and state-dependent asset allocation problem. We solve a three-period problem for five assets, and compare the piecewise linear model with the hybrid model. We conduct the sensitivity analysis for different risk averse coefficients and autocorrelations to examine the characteristics of the model.
KW - Finance
KW - Multi-period asset allocation
KW - Simulation
KW - Stochastic optimization
UR - http://www.scopus.com/inward/record.url?scp=84958965531&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84958965531&partnerID=8YFLogxK
M3 - Article
AN - SCOPUS:84958965531
VL - 58
SP - 307
EP - 329
JO - Journal of the Operations Research Society of Japan
JF - Journal of the Operations Research Society of Japan
SN - 0453-4514
IS - 4
ER -