Abstract
We consider a dynamic mean-risk problem, where the risk constraint is given by the Average Value–at–Risk. As financial market we choose a discrete-time binomial model which allows for explicit solutions. Problems where the risk constraint on the final wealth is replaced by intermediate risk constraints are also considered. The problems are solved with the help of the theory of Markov decision models and a Lagrangian approach.
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Bäuerle, N., Mundt, A. Dynamic mean-risk optimization in a binomial model. Math Meth Oper Res 70, 219–239 (2009). https://doi.org/10.1007/s00186-008-0267-0
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DOI: https://doi.org/10.1007/s00186-008-0267-0