Portfolio Selection, Periodic Evaluations and Risk Taking

• 成果类型: Article
• 署名作者: Tse, Alex S. L.; Zheng, Harry
• 署名单位: University of London; University College London; Imperial College London
• 刊物名称: OPERATIONS RESEARCH
• ISSN/ISSBN: 0030-364X
• DOI: 10.1287/opre.2021.0780
• 发表日期: 2023
• 关键词: portfolio selection; S-shaped utility; periodic evaluation; AGENCY; incentive

摘要

We present a continuous-time portfolio selection problem faced by an agent with S-shaped preference who maximizes the utilities derived from the portfolio's periodic performance over an infinite horizon. The periodic reward structure creates subtle incentive distortion. In some cases, local risk aversion is induced, which discourages the agent from risk taking in the extreme bad states of the world. In some other cases, eventual ruin of the portfolio is inevitable, and the agent underinvests in the good states of the world to manipulate the basis of subsequent performance evaluations. We outline several important elements of incentive design to contain the long-term portfolio risk.