Abstract
Risk-sensitive investment management (RSIM) has emerged as a powerful approach that leverages the mathematics of stochastic control to address dynamic investment management problems. This note discusses RSIM and examines three practical implications of RSIM for investment managers. Firstly, RSIM models serve as a valuable tool for understanding and explaining the outcomes of realistic dynamic models. For example, they offer closed-form approximations of stochastic programming models. Secondly, RSIM sheds light on crucial investment management questions. RSIM enables practitioners to analyze the impact of various factors on investment performance, unravel the dynamics between active and passive management strategies, investigate the mechanics of learning within investment decisions, assess the value of expert opinions, and evaluate the effectiveness of stress test scenarios. Lastly, RSIM casts light on perilous strategies and practices that can lead to catastrophic losses for investment funds, such asexcessive betting or overbetting.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
