dc.contributor
Universitat Politècnica de Catalunya. Departament de Ciències de la Computació
dc.contributor
Universitat Politècnica de Catalunya. LARCA - Laboratori d'Algorísmia Relacional, Complexitat i Aprenentatge
dc.contributor.author
Arratia Quesada, Argimiro Alejandro
dc.contributor.author
Gzyl, Henryk
dc.identifier
Arratia, A.; Gzyl, H. Portfolio optimization in incomplete markets and price constraints determined by maximum entropy in the mean. "Computational economics", Desembre 2020, vol. 56, num. 4, p. 929–952.
dc.identifier
https://hdl.handle.net/2117/177704
dc.identifier
10.1007/s10614-019-09954-3
dc.description.abstract
A solution to a portfolio optimization problem is always conditioned by constraints on the initial capital and the price of the available market assets. If a risk neutral measure is known, then the price of each asset is the discounted expected value of the asset's price under this measure. But if the market is incomplete, the risk neutral measure is not unique, and there is a range of possible prices for each asset, which can be identified with bid-ask ranges. We present in this paper an effective method to determine the current prices of a collection of assets in incomplete markets, and such that these prices comply with the cost constraints for a portfolio optimization problem.
Our workhorse is the method of maximum entropy in the mean to adjust a distortion function from bid-ask market data. This distortion function plays the role of a risk neutral measure, which is used to price the assets, and the
distorted probability that it determines reproduces bid-ask market values. We carry out numerical examples to study the effect on portfolio returns of the computation of prices of the assets conforming the portfolio with the proposed
methodology
dc.description.abstract
Peer Reviewed
dc.description.abstract
Postprint (author's final draft)
dc.format
application/pdf
dc.relation
https://link.springer.com/article/10.1007/s10614-019-09954-3
dc.relation
info:eu-repo/grantAgreement/AEI/Plan Estatal de Investigación Científica y Técnica y de Innovación 2013-2016/TIN2017-89244-R/ES/GESTION Y ANALISIS DE DATOS COMPLEJOS/
dc.subject
Àrees temàtiques de la UPC::Matemàtiques i estadística::Matemàtica financera
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Finance -- Econometric models
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Mathematical optimization
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Portfolio optimization
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Maximum entropy in mean
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Distortion function
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Risk neutral measures
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Finances -- Models economètrics
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Optimització matemàtica
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Classificació AMS::91 Game theory, economics, social and behavioral sciences::91B Mathematical economics
dc.subject
Classificació AMS::90 Operations research, mathematical programming::90C Mathematical programming
dc.title
Portfolio optimization in incomplete markets and price constraints determined by maximum entropy in the mean
