Rank-Dependent Utility Maximization Under Risk Exposure Constraint

This paper analyzes the optimal investment policies of rank-dependent utility maximizing investor who must manage the risk exposure using a general law- invariant risk measure such as Value-at-Risk and tail Value-at-Risk. The analytic optimal solution is obtained via the so-called quantile formulation and relaxation method. We find that the investor must control the risk exposure when he/she has not enough money to invest or the constraint is very restrictive