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A Bayesian Application of the Variational Preferences to Optimal Portfolio Choice
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A Bayesian Application of the Variational Preferences to Optimal Portfolio Choice

Eric André
28/06/2024

Abstract

Model uncertainty Variational Preferences Bayesian Analysis Portfolio Choice Likelihood Ratio
This letter develops a decision criterion which takes into account parameter and model uncertainty in an optimal portfolio choice problem. This criterion is a special case of the Variational Preferences, rewritten in the Bayesian statistics notations, which specifically exploits the information contained in an observed sample of assets’ returns. I provide an example to illustrate its properties and to highlight its differences with the closely related Multiplier Preferences.
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ANDRE_A Bayesian Application of the Variational Preferences to Optimal Portfolio Choice
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