On loss-avoiding payoff distribution in a dynamic portfolio management problem

摘要

Purpose - The aim of this paper is to propose and analyse policies capable of generating left-skewed pension distributions. Such policies can deliver large pension values with high probability and hence are of interest to practical fund managers. Design/methodology/approach - The paper uses a computational method capable of solving stochastic optimal control problems. The optimal strategies obtained through the method are used to simulate dynamic portfolio management. Findings - The paper finds that optimisation of locally non-concave performance measures has produced left-skewed payoff distributions of small VaR and CVaR. The distributions remain left-skewed for relatively large values of the diffusion parameter. Practical implications - On the basis of the findings, it would seem beneficial for real-world fund managers to implement this kind of optimising "cautious-relaxed" policy. Originality/value - A novel non-concave performance measure has been proposed in the paper to describe a portfolio manager's aim. The computed "cautious-relaxed" policies have been shown to realise this aim.