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IOE899 Seminar Schedule
IOE 899: Seminar in Industrial and Operations Engineering
Andrew Lim, University of California, Berkeley
IOE 899: Seminar in Industrial and Operations Engineering
Wed Sep 16, 2009, 4:00-5:00pm, 1680 IOE
Andrew Lim, University of California, Berkeley
"Model uncertainty, learning and robustness in portfolio selection"
| Abstract |
| We formulate single and multi?period portfolio choice problems with parameter uncertainty in the framework of relative regret. Relative regret evaluates a portfolio by comparing its return to a family of benchmarks, where the benchmarks are the wealths of fictitious investors who invest optimally given knowledge of the model parameters. The optimal relative regret portfolio is the one that performs well in relation to all the benchmarks over the family of possible parameter values. We solve the relative regret problem by showing that it is equivalent to a certain Bayesian problem which we analyze using stochastic control methods. The Bayesian problem is unusual in that the prior distribution is endogenously chosen, and the objective function involves the family of benchmarks from the relative regret problem. The solution of the Bayesian problem (and hence the relative regret problem) is interesting in that it involves a ``tilted?? posterior, where the posterior comes from Bayesian updating of the endogenous prior, and ``tilting?? is defined in terms of a likelihood ratio that depends on the family of benchmarks. |
| Bio |
| Andrew Lim is an Associate Professor and the Coleman Fung Chair in Financial Modeling in the Department of Industrial Engineering and Operations at the University of California (Berkeley). His research interests are in the areas of stochastic models and optimization, financial engineering, revenue management and risk management. |
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