Optimal portfolio rules are derived under uncertainty aversion by formulating the portfolio choice problem as a robust control problem. Using a power utility function of the form C with 0 < < 1; we present the solution of the robust portfolio choice problem in the cases of one and two risky assets. In particular, for two risky assets and one risk-free asset case, we con…rm our earlier theoretical result , that under uncertainty aversion the total holdings of risky assets as a proportion of the investor’s wealth could increase as compared to the holdings under the Merton rule, which is the standard risk aversion case.
Uncertainty Aversion, Model Misspeci…cation, Robust Control, Portfolio Choice Models
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