The Standard Portfolio Choice Problem in Germany

Optimal portfolio choice in the bond market

We consider the Merton problem of optimal portfolio choice when the traded instruments are the set of zero-coupon bonds. Working within a Markovian Heath–Jarrow–Morton model of the interest rate term structure driven by an infinite-dimensional Wiener process, we give sufficient conditions for the existence and uniqueness of an optimal trading strategy. When there is uniqueness, we provide a cha...

On the Equivalence of Optimality Principles in the Two-Criteria Problem of the Investment Portfolio Choice

In this paper, we examine the problem of finding an optimal portfolio of securities by using the probability function of portfolio risk as a constraint. We obtain the value of the risk coefficient for which the problem of maximizing the expectation of the portfolio return with a probabilistic risk function constraint is equivalent to the maximizing the linear convolution of the criteria ”expect...

Portfolio Choice Problems ∗

Modern Portfolio Theory, Digital Portfolio Theory and Intertemporal Portfolio Choice

The paper compares three portfolio optimization models. Modern portfolio theory (MPT) is a short-horizon volatility model. The relevant time horizon is the sampling interval. MPT is myopic and implies that investors are not concerned with long-term variance or mean-reversion. Intertemporal portfolio choice is a multiple period model that revises portfolios continuously in response to relevant s...

Portfolio Choice in the Presence of Housing

I show that investment in housing plays a crucial role in explaining the patterns of cross sectional variation in the composition of wealth and the level of stockholdings observed in portfolio composition data. Due to investment in housing, younger and poorer investors have limited ̄nancial wealth to invest in stocks, which reduces the bene ̄ts of equity market participation. House price risk cr...