Optimal Portfolio Problem with Unknown Dependency Structure

This research studies a single-period expected utility-based optimal portfolio problem. Assets are divided into different groups. It is assumed that the actual dependency structure of the asset returns within each group is unknown, but assets belonging to different groups have independent returns. Instead of assuming any particular dependency structure within each group, we propose the maximin criterion as an alternative optimization criterion. The least favorable dependency structure is first identified, then we proceed to analyze the optimal portfolio problem as if this were the actual dependency structure. Sufficient conditions for ordering the aggregate amounts allocated to different groups, and for ordering the amounts allocated to different assets within each group are obtained.