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Ordering of Optimal Portfolio Allocations in a Model with a Mixture of Fundamental Risks

  • Ka Chun Cheung (a1) and Hailiang Yang (a2)
Abstract

In this paper we study a single-period optimal portfolio problem in which the aim of the investor is to maximize the expected utility. We assume that the return of every security in the market is a mixture of some common underlying source of risks. A sufficient condition to order the optimal allocations is obtained, and it is shown that several models studied in the literature before are special cases of the proposed model. In the course of the analysis concepts in stochastic orders are employed, and a new characterization of the likelihood ratio order is obtained.

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Copyright
Corresponding author
Postal address: Department of Mathematics and Statistics, University of Calgary, Calgary, Alberta, T3A 2E2, Canada. Email address: kccheung@math.ucalgary.ca
∗∗ Postal address: Department of Statistics and Actuarial Science, The University of Hong Kong, Pokfulam Road, Hong Kong.
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Journal of Applied Probability
  • ISSN: 0021-9002
  • EISSN: 1475-6072
  • URL: /core/journals/journal-of-applied-probability
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