On the Effect of Premia and Penalties on the Optimal Portfolio Choice

In a standard portfolio choice between a risky and a safe asset, we study the eﬀect of imposing premia and penalties conditional on the realized return of the portfolio meeting a given threshold. We show that thresholds set at ”intermediate levels” have the eﬀect to increase the optimal share of the safe asset, while very low and very high thresholds may induce larger shares of the risky investment if a condition on the curvature of the utility function holds.

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Year of publication:	2012-10
Authors:	Currarini, Sergio ; Marini, Marco A.

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Type of publication:	Book / Working Paper
Language:	English
Notes:	Currarini, Sergio and Marini, Marco A. (2012): On the Effect of Premia and Penalties on the Optimal Portfolio Choice. Published in: International Journal of Contemporary Mathematical Sciences , Vol. 47, No. 7 (October 2012): pp. 2341-2344.
Classification:	C5 - Econometric Modeling ; C6 - Mathematical Methods and Programming ; D0 - Microeconomics. General ; G0 - Financial Economics. General ; M0 - Business Administration and Business Economics; Marketing; Accounting. General ; M00 - Business Administration and Business Economics; Marketing; Accounting. General
Source:	BASE

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