Portfolio choice problem with the Value-at-Risk utility function under general linear constraints
Abstract
Purpose and subject of research
The paper is devoted to the problem on constructing an optimal portfolio with the highest expected utility in which to evaluate the risk of the portfolio is accepted VaR. In contrast to the classical method of constructing the portfolio with the expected use of quadratic utility, considered approach was not considered in scientific studies, since the use of VaR as a tool to calculate the risk of the portfolio and its construction is quite new.
Research methodology
The study is expected utility function of assigned based on Value-at-Risk and its application to the problem of rational choice structure of the portfolio.
Value results
Using the described method of constructing an optimal portfolio, particularly in banking is fully consistent with the recommendations of the Basel Committee. Using this method will allow banks to conduct transactions on the stock market under the Basel and, in addition, provided literacy restrictions, consider all the rules and limitations prescribed by law.
Conclusions
The paper considers a generalized and solved the problem of portfolio optimization where classical optimization condition (the sum of the portfolio weights are 1) is replaced by linear restrictions on weights.
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