Optimal multivariate financial decision making
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Optimal multivariate financial decision making. / Bernard, C.; De Gennaro Aquino, L.; Vanduffel, S.
In: European Journal of Operational Research, Vol. 307, No. 1, 2023, p. 468-483.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - Optimal multivariate financial decision making
AU - Bernard, C.
AU - De Gennaro Aquino, L.
AU - Vanduffel, S.
N1 - Publisher Copyright: © 2022 Elsevier B.V.
PY - 2023
Y1 - 2023
N2 - Agents who pursue optimal portfolio choice by optimizing a univariate objective (e.g., an expected utility) obtain optimal payoffs that are increasing with each other (situation of no diversification). This situation may lead to an undesirable level of systemic risk for society. A regulator may consider a global perspective and aim to enforce diversification among the various portfolios by optimizing a suitable multivariate objective. We explain that optimal solutions satisfy a notion of multivariate cost-efficiency and provide an algorithm to obtain multivariate cost-efficient payoffs. We also assess the cost of diversification and provide the strategy that the regulator should pursue for obtaining the desired level of diversification.
AB - Agents who pursue optimal portfolio choice by optimizing a univariate objective (e.g., an expected utility) obtain optimal payoffs that are increasing with each other (situation of no diversification). This situation may lead to an undesirable level of systemic risk for society. A regulator may consider a global perspective and aim to enforce diversification among the various portfolios by optimizing a suitable multivariate objective. We explain that optimal solutions satisfy a notion of multivariate cost-efficiency and provide an algorithm to obtain multivariate cost-efficient payoffs. We also assess the cost of diversification and provide the strategy that the regulator should pursue for obtaining the desired level of diversification.
KW - Cost-efficiency
KW - Decision analysis
KW - Diversification
KW - Multivariate preferences
KW - Systemic risk
UR - http://www.scopus.com/inward/record.url?scp=85139734758&partnerID=8YFLogxK
U2 - 10.1016/j.ejor.2022.09.017
DO - 10.1016/j.ejor.2022.09.017
M3 - Journal article
AN - SCOPUS:85139734758
VL - 307
SP - 468
EP - 483
JO - European Journal of Operational Research
JF - European Journal of Operational Research
SN - 0377-2217
IS - 1
ER -
ID: 323556274