Evaluating Portfolio Policies: A Duality Approach / Martin B. Haugh, Leonid Kogan, Jiang Wang.

Format:

Book

Author/Creator:

Haugh, Martin B.

Contributor:

National Bureau of Economic Research.

Kogan, Leonid.

Wang, Jiang.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9861.

NBER working paper series no. w9861

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Evaluating Portfolio Policies

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

The performance of a given portfolio policy can in principle be evaluated by comparing its expected utility with that of the optimal policy. Unfortunately, the optimal policy is usually not computable in which case a direct comparison is impossible. In this paper we solve this problem by using the given portfolio policy to construct an upper bound on the unknown maximum expected utility. This construction is based on a dual formulation of the portfolio optimization problem. When the upper bound is close to the expected utility achieved by the given portfolio policy, the potential utility loss of this policy is guaranteed to be small. Our algorithm can be used to evaluate portfolio policies in models with incomplete markets and position constraints. We illustrate our methodology by analyzing the static and myopic policies in markets with return predictability and constraints on short sales and borrowing.

Notes:

Print version record

July 2003.