Portfolio selection with exploration of new investment assets

Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt

Standard

Portfolio selection with exploration of new investment assets. / De Gennaro Aquino, Luca; Sornette, Didier; Strub, Moris S.

I: European Journal of Operational Research, Bind 310, Nr. 2, 2023, s. 773-792.

Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt

Harvard

De Gennaro Aquino, L, Sornette, D & Strub, MS 2023, 'Portfolio selection with exploration of new investment assets', European Journal of Operational Research, bind 310, nr. 2, s. 773-792. https://doi.org/10.1016/j.ejor.2023.03.017

APA

De Gennaro Aquino, L., Sornette, D., & Strub, M. S. (2023). Portfolio selection with exploration of new investment assets. European Journal of Operational Research, 310(2), 773-792. https://doi.org/10.1016/j.ejor.2023.03.017

Vancouver

De Gennaro Aquino L, Sornette D, Strub MS. Portfolio selection with exploration of new investment assets. European Journal of Operational Research. 2023;310(2):773-792. https://doi.org/10.1016/j.ejor.2023.03.017

Author

De Gennaro Aquino, Luca ; Sornette, Didier ; Strub, Moris S. / Portfolio selection with exploration of new investment assets. I: European Journal of Operational Research. 2023 ; Bind 310, Nr. 2. s. 773-792.

Bibtex

@article{a65015131f9b4970a8225c1c4f1ea0e1,
title = "Portfolio selection with exploration of new investment assets",
abstract = "We introduce a model for portfolio selection with an extendable investment universe where an agent with mean-variance preferences faces a trade-off between exploiting existing and exploring for new investment opportunities. When the agent chooses to explore, a new risky asset is discovered and the agent subsequently invests in the extended universe. We first provide conditions for wellposedness and characterize the optimal amount devoted to exploration. Our model shows that incremental exploration does not pay off, that it is increasingly worthwhile to explore in worse market environments, and that investment performance measured by the Sharpe ratio is increasing in the initial wealth of the agent indicating that richer agents can make better use of new investment opportunities. We further generalize our model and verify the robustness of the main findings with regard to various modeling assumptions.",
keywords = "Exploration vs. exploitation, Investment analysis, Mean-variance preferences, Portfolio optimization",
author = "{De Gennaro Aquino}, Luca and Didier Sornette and Strub, {Moris S.}",
note = "Publisher Copyright: {\textcopyright} 2023 Elsevier B.V.",
year = "2023",
doi = "10.1016/j.ejor.2023.03.017",
language = "English",
volume = "310",
pages = "773--792",
journal = "European Journal of Operational Research",
issn = "0377-2217",
publisher = "Elsevier",
number = "2",

}

RIS

TY - JOUR

T1 - Portfolio selection with exploration of new investment assets

AU - De Gennaro Aquino, Luca

AU - Sornette, Didier

AU - Strub, Moris S.

N1 - Publisher Copyright: © 2023 Elsevier B.V.

PY - 2023

Y1 - 2023

N2 - We introduce a model for portfolio selection with an extendable investment universe where an agent with mean-variance preferences faces a trade-off between exploiting existing and exploring for new investment opportunities. When the agent chooses to explore, a new risky asset is discovered and the agent subsequently invests in the extended universe. We first provide conditions for wellposedness and characterize the optimal amount devoted to exploration. Our model shows that incremental exploration does not pay off, that it is increasingly worthwhile to explore in worse market environments, and that investment performance measured by the Sharpe ratio is increasing in the initial wealth of the agent indicating that richer agents can make better use of new investment opportunities. We further generalize our model and verify the robustness of the main findings with regard to various modeling assumptions.

AB - We introduce a model for portfolio selection with an extendable investment universe where an agent with mean-variance preferences faces a trade-off between exploiting existing and exploring for new investment opportunities. When the agent chooses to explore, a new risky asset is discovered and the agent subsequently invests in the extended universe. We first provide conditions for wellposedness and characterize the optimal amount devoted to exploration. Our model shows that incremental exploration does not pay off, that it is increasingly worthwhile to explore in worse market environments, and that investment performance measured by the Sharpe ratio is increasing in the initial wealth of the agent indicating that richer agents can make better use of new investment opportunities. We further generalize our model and verify the robustness of the main findings with regard to various modeling assumptions.

KW - Exploration vs. exploitation

KW - Investment analysis

KW - Mean-variance preferences

KW - Portfolio optimization

UR - http://www.scopus.com/inward/record.url?scp=85152684211&partnerID=8YFLogxK

U2 - 10.1016/j.ejor.2023.03.017

DO - 10.1016/j.ejor.2023.03.017

M3 - Journal article

AN - SCOPUS:85152684211

VL - 310

SP - 773

EP - 792

JO - European Journal of Operational Research

JF - European Journal of Operational Research

SN - 0377-2217

IS - 2

ER -

ID: 359600363