Portfolio allocation problems between risky and ambiguous assets

Takao Asano, Yusuke Osaki

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This paper considers a portfolio allocation problem between a risky asset and an ambiguous asset, and investigates how greater ambiguity aversion influences the optimal proportion invested in the two assets. We derive several sufficient conditions under which greater ambiguity aversion decreases the optimal proportion invested in the ambiguous asset. Furthermore, we consider an international diversification problem as an application and show that ambiguity aversion partially resolves the home bias puzzle.

Original languageEnglish
Pages (from-to)63-79
Number of pages17
JournalAnnals of Operations Research
Volume284
Issue number1
DOIs
Publication statusPublished - Jan 1 2020

Keywords

  • Greater ambiguity aversion
  • Home bias puzzle
  • Portfolio allocation problem
  • Smooth ambiguity model
  • Uncertainty modelling

ASJC Scopus subject areas

  • Decision Sciences(all)
  • Management Science and Operations Research

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