SMS scnews item created by Ben Goldys at Sat 26 Oct 2019 0819
Type: Seminar
Modified: Tue 12 Nov 2019 0912; Sat 16 Nov 2019 1551
Distribution: World
Expiry: 12 Nov 2019
Calendar1: 29 Oct 2019 1405-1500
CalLoc1: AGR Carslaw 829
Calendar2: 19 Nov 2019 1505-1600
CalLoc2: AGR Carslaw 829
Auth: beng@d49-191-132-13.mas2.nsw.optusnet.com.au (bgoldys) in SMS-WASM

Stochastics and Finance Seminar: Krawczyk -- Dynamic portfolio management

UPDATE to the 2nd seminar by Jacek Krawczyk. Please, note the change of date. 

TITLE: The Role of Payoff Distribution in Dynamic
Portfolio Management, Part 2

TIME: 3PM, November 19, 2019, 2PM VENUE: RC829

Robustness of cautious-relaxed investment policies to target contingency and
selfish manager preferences.  A cautious-relaxed investment policy is one which
optimises a target-based kinked utility measure.  A cautious-relaxed investment policy
can generate a left (negatively) skewed payoff distribution that helps people form
strong expectations of a satisfactory final payoff.  This means that applying a
cautious-relaxed investment policy will help avoid frequently obtaining low returns -
so, losses - and at the same time promises higher payoffs with greater certainty.  The
question then arises as to what extent are such strategies realistic in the presence of
e.g., target variation and inflation, fund manager selfishness or transaction costs.  In
my presentation, I will use a computational method (“SOCSol”) to find approximately
optimal decision rules and the corresponding payoff distributions for several such
cases.  Therefore the reported results will be parameter specific.  The effect of
varying the payoff target on the payoff distribution is that increasing the target
causes the distribution to become less left skewed, causing higher probabilities of
loss; even if the fund manager’s explicit preferences differ from the investor’s, the
latter’s payoff should not suffer; in case the target is contingent on an exogenous
stochastic process the payoff distribution depends on a correlation between inflation
and the risky asset price.


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