[en] ON THE ECONOMIC INTERPRETATION OF TIME CONSISTENT RISK AVERSE DYNAMIC STOCHASTIC PROGRAMMING PROBLEMS

[pt] ALEXANDRE STREET DE AGUIAR

[pt] DAVI MICHEL VALLADAO

[pt] BIRGIT RUDLOFF

[en] VALUE AT RISK

[en] TIME CONSISTENCY

[en] DYNAMIC STOCHASTIC PROGRAMMING

[en] PORTFOLIO SELECTION

[en] RISK AVERSION

[en] In the recent literature, it is shown that a recursive set up for risk averse dynamic stochastic programming problems ensures time consis- tency of the generated optimal policies. However, a lack of suitable eco- nomic interpretation for this complex objective function is the main reason why this formulation is not commonly used in practical applications. In this paper, we develop a clear economic interpretation for this recursive objective function as the certainty equivalent w.r.t. the time consistent dynamic utility generated by one period preference functionals. In order to motivate this modeling choice, we use a CVaR based portfolio selec- tion problem to show some practical consequences of a time inconsistent optimal policy and propose a time consistent alternative. We use a nu- merical example to compare those optimal solutions and to illustrate our economic interpretation.

2011-03-04

[pt] TEXTO

application/pdf

INGLÊS

https://www.maxwell.vrac.puc-rio.br/colecao.php?strSecao=resultado&nrSeq=17037@2