Klaus Hellwig

Portfolio selection under the condition of value preservation

Besides risk and return, investors often are interested in choosing a portfolio such that the portfolio value is preserved. However, the traditional utility-maximizing approach generally fails to provide such a solution. As a different approach value preservation is formulated as an equilibrium problem. Following this approach it is shown that under reasonable assumptions a value preserving solution exists. The solution only depends on the set of feasable portfolio decisions. Contrary to this, the Bernoulli principle in addition requires a utility function that is independent from this set.

Growth and utility maximization

Abstract The concept of growth maximization as a criterion for multiperiod portfolio selection is generalized. It is shown that relaxing the condition of maximum growth can lead to an inconsistency with the utility maximization concept.

A Present Value Approach to the Portfolio Selection Problem

The traditional approach to the single-period portfolio problem is to assume that there is some given utility function such that an optimal portfolio can be found by maximizing expected utility (see, for example, [4]). However, the determination of such a utility function may cause substantial difficulties. This, in particular, holds for an investment company, which generally does not know the investors’ preferences or is able to aggregate them.

Just Intergenerational Resource Sharing: An Axiomatic Approach

In contrast to customary approaches to the theoretical economic problem of intergenerational resource distribution, we employ an axiomatic approach based on two principles: efficiency and sustainability. These are operationalized and then decisions which satisfy them are characterized in the presence of a standard technology. Upon interpreting some basic implications, the chosen approach turns out to be a kind of fusion of utilitarian principles and a particular distributional restriction. The proof of the existence of a resource-sustaining solution for a generalized model reveals some interesting relationships between our approach and general equilibrium theory.

Tradeoff oriented solutions in multicriteria optimization

It is proposed to restrict the set of efficient solutions in multicriteria optimization by the requirement that a higher tradeoff of an objective should result in a higher output of the objective. It is shown that a solution satisfying this requirement exists under reasonable conditions.

A Stakeholder Approach to the Valuation of Corporate Cash Flows

Since real-world capital markets are not complete and perfect, the value of cash flow streams cannot be derived from market prices alone. Although different shareholders may prefer different investment strategies, however, they agree that corporate cash flows must not be dominated by alternative cash flows available in the market. Hence, capital markets determine a margin for valuation and the question arises, which principles of corporate planning are adequate for selecting a particular valuation within this margin. We argue that the preservation of the present value of generated cash flows over time (i.e. restricting paid out dividends to the created income) is a well-reasoned principle which is, moreover, well-established in most European corporate governance systems. The paper focuses on the implementation of this principle into standard models for corporate financial planning.