Continuous Time Portfolio Selection under Conditional Capital at Risk.pdfVIP

Hindawi Publishing Corporation Journal of Probability and Statistics Volume 2010, Article ID 976371, 26 pages doi:10.1155/2010/976371 Research Article Continuous Time Portfolio Selection under Conditional Capital at Risk Gordana Dmitrasinovic-Vidovic, Ali Lari-Lavassani, Xun Li, and Antony Ware The Mathematical and Computational Finance Laboratory, University of Calgary, Calgary, AB, Canada T2N 1N4 Correspondence should be addressed to Gordana Dmitrasinovic-Vidovic, gdmitras@ucalgary.ca Received 29 October 2009; Revised 4 February 2010; Accepted 26 March 2010 Academic Editor: Ricardas Zitikis ˇ Copyright q 2010 Gordana Dmitrasinovic-Vidovic et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. Portfolio optimization with respect to different risk measures is of interest to both practitioners and academics. For there to be a well-defined optimal portfolio, it is important that the risk measure be coherent and quasiconvex with respect to the proportion invested in risky assets. In this paper we investigate one such measure—conditional capital at risk—and find the optimal strategies under this measure, in the Black-Scholes continuous time setting, with time dependent coefficients. 1. Introduction The choice of risk measure has a significant effect on portfolio investment decisions. Downside risk measures—that focus attention on the downside tail of the distribution of portfolio returns—have received considerable attention in the financial world. Value at risk VaR is probably the most famous among these measures, having featured heavily in various regulatory frameworks. It can be defined