Mean-Variance vs. Full-Scale Optimization: Broad Evidence for the UK
Författare
Summary, in English
In the Full-Scale Optimization approach the complete empirical financial return probability distribution is considered; and the utility maximizing solution is found through numerical optimization. Using a portfolio choice setting of three UK equity indices we identify several utility functions featuring loss aversion and prospect theory; under which Full-Scale Optimization is a substantially better approach than the mean-variance approach. As the equity indices have return distributions with small deviations from normality; the findings indicate much broader usefulness of Full-Scale Optimization than has earlier been shown. The results hold in and out of sample; and the performance improvements are given in terms of utility as well as certainty equivalents.
Avdelning/ar
Publiceringsår
2008
Språk
Engelska
Publikation/Tidskrift/Serie
Working Papers, Department of Economics, Lund University
Issue
1
Länkar
Dokumenttyp
Working paper
Förlag
Department of Economics, Lund University
Ämne
- Economics
Nyckelord
- portfolio choice
- utility maximization
- full-scale
Status
Published