A copula approach with univariate ARMA-GARCH models is used in a rolling forecast to simulate monthly future returns and calculate the derived measures for the optimization. In a case study with three indices, we investigate how these theoretical differences influence the performance of the portfolio selection strategies. The former is a coherent risk measure for utility functions with constant relative risk aversion and allows individual specifications to the investor’s risk attitude and time preference. We compare the portfolio optimization with OEU constraint to a portfolio selection model using value at risk as constraint. The purpose of this article is to evaluate optimal expected utility risk measures (OEU) in a risk-constrained portfolio optimization context where the expected portfolio return is maximized.
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May 2023
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