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PESSIMISTIC PORTFOLIO ALLOCATION AND CHOQUET EXPECTED UTILITY

By Gilbert W. Bassett, Roger Koenker and Gregory Kordas

Abstract

Abstract. Recent developments in the theory of choice under uncertainty and risk yield a pessimistic decision theory that replaces the classical expected utility criterion with a Choquet expectation that accentuates the likelihood of the least favorable outcomes. A parallel theory has recently emerged in the literature on risk assessment. It is shown that pessimistic portfolio optimization based on the Choquet approach may be formulated as an exercise in quantile regression. Algernon: I hope to-morrow will be a fine day, Lane. Lane: It never is, sir. Algernon: Lane, you’re a perfect pessimist. Lane: I do my best to give satisfaction, sir

Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.196.4266
Provided by: CiteSeerX
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