PARAMETER-BASED DECISION-MAKING UNDER ESTIMATION RISK - AN APPLICATION TO FUTURES TRADING

This study shows how the standard portfolio model of futures trading s hould be modified when there is less than perfect information about th e relevant parameters (estimation risk). The standard and the optimal decision rules for futures trading in the presence of estimation risk are compared and discussed. An operational model of futures trading fo r use under estimation risk is advanced. In the presence of relevant p rior and sample information, the model can be used to optimally blend both types of information.