Optimal portfolio selection and compression in an incomplete market

Details Optimal portfolio selection and compression in an incomplete market Optimal portfolio selection and compression in an incomplete market

2002-07-27

arxiv.org/abs/math/0207260v1

Quantitative Finance 1(2001), iss. 3, 336-345

Mathematics

Probability

Scientific paper

We investigate an optimal investment problem with a general performance criterion which, in particular, includes discontinuous functions. Prices are modeled as diffusions and the market is incomplete. We find an explicit solution for the case of limited diversification of the portfolio, i.e. for the portfolio compression problem. By this we mean that an admissible strategies may include no more than m different stocks concurrently, where m may be less than the total number n of available stocks.

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