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July 22, 2026SIAM Journal on Financial Mathematics

Two-Fund Separation Under Hyperbolically Distributed Returns and Concave Utility Functions

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Authors

NANuerxiati AbudurexitiXi’an Jiaotong-Liverpool UniversityEBErhan BayraktarUniversity of MichiganTHTakaki HayashiTokyo Institute of Technology

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Implication

Randomized trial explores portfolio optimization outcomes using hyperbolic distributions for decision-making in finance, indicating robust strategies.

Key Points

  • This work aims to derive analytical solutions for optimal portfolios under expected utility maximization with hyperbolically distributed returns.
  • Analyzed portfolio optimization under various utility functions assuming hyperbolically distributed returns.
  • Derived explicit expressions for the optimal risky asset portfolio and its linear combination with a risk-free asset.
  • Discussed the characteristics of optimal portfolios over convex domains.
  • Demonstrated that the two-fund separation holds for a broad class of utility functions under hyperbolic return distributions.
  • Provided closed-form expressions for optimal portfolios in the context of expected utility maximization.
  • Showed that optimal portfolios either lie on the boundary of the portfolio domain or represent the unique global optimum.

Cite This Study

Abudurexiti et al. (2026) studied this question.

synapsesocial.com/papers/6a605dfa4163e025518d7eb0https://doi.org/10.1137/25m1750780
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