In this note it is shown that risk neutral optimal portfolio strategy is nearly optimal for risk sensitive portfolio cost functional with negative risk factor that is close to 0.

We consider the classical Merton problem of finding the optimal consumption rate and the optimal portfolio in a Black-Scholes market driven by fractional Brownian motion B with Hurst parameter H > 1/2. The integrals with respect to B are in the Skorohod sense, not pathwise which is known to lead to arbitrage. We explicitly find the optimal consumption rate and the optimal portfolio in such a ma...

We design an optimal strategy for investment in a portfolio of assets subject to a multiplicative Brownian motion. The strategy provides the maximal typical long-term growth rate of investor’s capital. We determine the optimal fraction of capital that an investor should keep in risky assets as well as weights of different assets in an optimal portfolio. In this approach both average return and ...

In an arbitrage free incomplete market we consider the problem of maximizing terminal isoelastic utility. The relationship between the optimal portfolio, the optimal martingale measure in the dual problem and the optimal value function of the problem is described by an BSDE. For a totally unhedgeable price for instantaneous risk, isoelastic utility of terminal wealth can be maximized using a po...

On the basis of Markowitz mean-variance framework, a new optimal portfolio selection approach is presented. The portfolio selection model proposed in the approach includes the expected return, the risk, and especially a quadratic type transaction cost of a portfolio. Using this model may yield an optimal portfolio solution that maximizes return, and minimizes risk, as well as also minimizes tra...

I examine an investor’s portfolio allocation problem across multiple risky assets in the presence of return predictability when, in addition to the predictability evidence, the investor uses conditional asset pricing models to guide him in the portfolio selection decision. I also explore how the uncertainty associated with the model dynamics affects the investor’s optimal portfolio. To analyze ...

We investigate the implications of optimal portfolio choice on fair pricing of specific pension insurance contracts. We motivate that the manager of the insurance company should optimize utility of final payout for the policy holders. The payout to the policy holder is highly non-linear in wealth, implying that the optimization problem is non-trivial. Still, we find closed form solutions. Simul...