Abstract
AbstractWe address the dynamic portfolio optimization problem where the expected utility from terminal wealth has to be maximized. The special feature of this paper is an additional constraint on the portfolio strategy modeling bounded shortfall risks. We consider the risk, that the terminal wealth of the portfolio falls short of a certain benchmark. This benchmark is chosen to be proportional to the stock price. The risk is measured by the Expected Utility Loss.Using a continuous‐time model of a complete financial market and applying martingale methods, analytic expressions for the optimal terminal wealth and the optimal portfolio strategies are given. (© 2005 WILEY‐VCH Verlag GmbH & Co. KGaA, Weinheim)
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