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Risk-sensitive benchmarked asset management

Author

Listed:
  • Mark Davis
  • SEBastien Lleo
Abstract
This paper extends the risk-sensitive asset management theory developed by Bielecki and Pliska and by Kuroda and Nagai to the case where the investor's objective is to outperform an investment benchmark. The main result is a mutual fund theorem. Every investor following the same benchmark will take positions, in proportions dependent on his/her risk sensitivity coefficient, in two funds: the log-optimal portfolio and a second fund which adjusts for the correlation between the traded assets, the benchmark and the underlying valuation factors.

Suggested Citation

  • Mark Davis & SEBastien Lleo, 2008. "Risk-sensitive benchmarked asset management," Quantitative Finance, Taylor & Francis Journals, vol. 8(4), pages 415-426.
    • Handle: RePEc:taf:quantf:v:8:y:2008:i:4:p:415-426
    DOI: 10.1080/14697680701401042
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    References listed on IDEAS

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