Risk Minimization and Portfolio Diversification

descriptionPublicationkeyboard_double_arrow_right Article , Preprint , Other literature type 01 Jan 2016Embargo end date: 01 Nov 2014 English Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

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Authors: Farzad Pourbabaee; Minsuk Kwak; Traian A. Pirvu;

doi: 10.2139/ssrn.2909096 , 10.1080/14697688.2015.1115891 , 10.48550/arxiv.1411.6657

arXiv: 1411.6657

Risk Minimization and Portfolio Diversification

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Abstract

We consider the problem of minimizing capital at risk in the Black-Scholes setting. The portfolio problem is studied given the possibility that a correlation constraint between the portfolio and a financial index is imposed. The optimal portfolio is obtained in closed form. The effects of the correlation constraint are explored; it turns out that this portfolio constraint leads to a more diversified portfolio.

Related Organizations

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Keywords

FOS: Economics and business, Portfolio Management (q-fin.PM), Optimization and Control (math.OC), FOS: Mathematics, Mathematics - Optimization and Control, Quantitative Finance - Portfolio Management

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