Article ID Journal Published Year Pages File Type
5091611 Journal of Banking & Finance 2006 20 Pages PDF
Abstract
We measure regression model performance (as perceived by a conservative investor betting on a complete market) via the out-of-sample expected utility for the allocation that maximizes expected utility under a most adverse model-consistent measure. This robust allocation is optimal under the minimum generalized relative entropy (MGRE) measure. We analyze our performance measure in the (practical) case of an investor whose utility function is a member of a three-parameter logarithmic family with a wide range of possible risk aversions. Here, our performance measure is independent of the market prices, and the MGRE measure minimizes the Kullback-Leibler relative entropy.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
, ,