Optimal Dynamic Portfolio Selection with Earnings-at-Risk

Zhongfei Li, Hailiang Yang, X. T. Deng

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)


In this paper we investigate a continuous-time portfolio selection problem.
Instead of using the classical variance as usual, we use earnings-at-risk (EaR) of terminal wealth as a measure of risk. In the settings of Black-Scholes type financial
markets and constantly-rebalanced portfolio (CRP) investment strategies, we obtain
closed-form expressions for the best CRP investment strategy and the efficient frontier of the mean-EaR problem, and compare our mean-EaR analysis to the classical
mean-variance analysis and to the mean-CaR (capital-at-risk) analysis. We also examine some economic implications arising from using the mean-EaR model.
Original languageEnglish
Pages (from-to)459-473
JournalJournal of Optimization Theory and Applications
Issue number3
Publication statusPublished - 2007
Externally publishedYes


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