On the Computation of Optimal Monotone Mean-Variance Portfolios via Truncated Quadratic Utility

We report a surprising link between optimal portfolios generated by a special type of variational preferences called divergence preferences (see Maccheroni et al., 2006) and optimal portfolios generated by classical expected utility. As a special case, we connect optimization of truncated quadratic utility (see Cerný, 2003) to the optimal monotone mean–variance portfolios (see Maccheroni et al., 2009), thus simplifying the computation of the latter.

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