Seminar by Dr. Haibo LIU from Department of Statistics and Department of Mathematics, Purdue University

We study three portfolio optimization problems with ESG factors under a multi-period model for three types of investors: “brown” investors who solely rely on historical asset prices to make investment decisions, “green” investors who utilize ESG factors to update their views on riskand return and have preferences for assets with good ESG ratings, and “mixed” investors who make use of ESG factors but do not have ESG preferences. In doing so, we propose an aggregate wealth-weighted ESG rating to measure the overall ESG performance of an investment strategy over the investment period and incorporate it into the green investors’ utility to reflect their ESG preferences. We look into issues such as three-fund separation, ESG-adjusted mean return rates, and the utility indifference value of the ESG information. Lastly, we conduct a numerical study to illustrate the main results.

Dr. Haibo Liu is an Assistant Professor in both the Department of Statistics and the Department of Mathematics at Purdue University. He obtained his BSc degree in 2013 and MPhil degree in 2015, both from the University of Hong Kong, and obtained his PhD degree from the University of Iowa in 2019. His research interests include Pricing in incomplete markets, Insurance-linked securities, Credit risk and ESG.