With the increasing power of institutional investors, in order to compete for more investment agency business, the competition among institutional investors has become increasingly fierce. This paper studies a non-zero-sum game between two competing institutional investors who adopt mean–variance preferences and account for model uncertainty in order to derive robust optimal portfolios. The ambiguity-averse institutional investors can invest in a financial market with one risk-free bond and one individual stock. The objective of each institutional investor is to maximize the mean–variance utility of his terminal wealth relative to that of his competitor under the worst-case scenario of the alternative measures. By means of stochastic dynamic programming, we obtain closed-form expressions for the robust Nash equilibrium strategies and prove a verification theorem. Numerical simulations are finally presented to examine how model parameters influence the equilibrium strategies and to extract associated economic interpretations.
This paper investigates optimal portfolio choice for a risk-averse investor who is operating in a
financial market characterized by continuous time usage and with explicit attention being paid to
the investor's sensitivity to market movements. The investor's preferences are described by a
power utility function of c...
C. Achudume· International Journal of Com...· 0 citations
The equal-weighted portfolio is a passive, rule-based strategy that has historically been difficult to outperform, delivering higher returns than the capitalization-weighted"market"benchmark across many markets and periods. Stochastic portfolio theory (SPT) reveals that this relative performance is regime dependent, wi...
Brian Ceco, Xiao-Fei Shi, Ting-Kam Leonard Wong· 0 citations
Traditional finance generally takes rational decision-making and market efficiency as its starting point, assuming that investors process information rationally. In actual trading, however, investors are influenced by reference points, their response to losses, and subjective judgment. Focusing on the Chinese stock mar...
Zi-Feng Han· Advances in Economics, Manag...· 0 citations
Abstract.
We introduce predictable relative forward performance processes (PRFPP) as a new framework for studying portfolio management within a competitive and incomplete market environment. Each agent trades a distinct stock following a binomial distribution with probabilities for a positive return depending on the m...
Ge-Chun Liang, M. Strub, Yu-Wei Wang· SIAM Journal on Financial Ma...· 0 citations
We examine a value-maximizing problem involving present-biased behavior, a prevalent and empirically observed psychological phenomenon, in a firm’s strategic decisions on earnings retention, payout, and capital injections. By modeling present-biased preferences using stochastic quasi-hyperbolic discounting, we frame...
