Speaker：Zhou Chao

Time: 14:30~16:00pm, October 17, 2019

Site：EMS A221

Abstract: This paper is concerned with a multi-asset mean-variance portfolio selection problem under model uncertainty. We develop a continuous time framework for taking into account ambiguity aversion about both expected return rates and correlation matrix of the assets, and for studying the effects on portfolio diversification. We prove a separation principle for the associated robust control problem, which allows to reduce the determination of the optimal dynamic strategy to the parametric computation of the minimal risk premium function. Our results provide a justification for underdiversification, as documented in empirical studies. We explicitly quantify the degree of under-diversification in terms of correlation and Sharpe ratio ambiguity. In particular, we show that an investor with a poor confidence in the expected return estimation does not hold any risky asset, and on the other hand, trades only one risky asset when the level of ambiguity on correlation matrix is large. This extends to the continuous-time setting the results obtained by Garlappi, Uppal and Wang , and Liu and Zeng in a one-period mode.

Introduction to the Speaker：

Zhou Chao is currently an assistant professor at the National University of Singapore. He holds a PhD from the École Polytechnique and a master's degree from the University Paris Dauphine and the Paris Graduate School of Economics, Statistics and Finance. He engaged in financial mathematics and stochastic analysis research, and published several articles in international authoritative journals with collaborators.