The Influence of the Absolute Risk Aversion Coefficient on Choosing the Optimal Portfolio
The paper examines changes in the optimal proportions of income or wealth invested in a safe active and in a risky active by an expected utility maximizing economic agent (investor). We will use some local measures of risk aversion to derive the necessary and sufficient conditions for the problem of choosing the optimal portfolio. We will present the relationship between the coefficient of absolute risk aversion and the return of the safe asset and we will derive some results concerning this relationship. We will show that, if the absolute risk aversion coefficient is an increasing function of income, then the return of the safe asset and the amount invested in the risky asset change in opposite directions. Finally, we will present an alternative way of analyzing agent’s behavior toward risk, the non-neutrality measure of risk aversion and we will derive a measure of the global approach to the neutrality.
The Influence of the Absolute Risk Aversion Coefficient on Choosing the Optimal Portfolio.
-
The Influence of the Absolute Risk Aversion Coefficient on Choosing the Optimal Portfolio.
Autori:
Daniela
Marinescu
Rezumat
The paper examines changes in the optimal proportions of income or wealth invested in a safe active and in a risky active by an expected utility maximizing economic agent (investor). We will use some local measures of risk aversion to derive the necessary and sufficient conditions for the problem of choosing the optimal portfolio. We will present the relationship between the coefficient of absolute risk aversion and the return of the safe asset and we will derive some results concerning this relationship. We will show that, if the absolute risk aversion coefficient is an increasing function of income, then the return of the safe asset and the amount invested in the risky asset change in opposite directions. Finally, we will present an alternative way of analyzing agent’s behavior toward risk, the non-neutrality measure of risk aversion and we will derive a measure of the global approach to the neutrality.
Cuvinte cheie:
uncertainty, risk aversion, absolute risk aversion, optimal portfolio, risky and safe assets, non-neutrality measure of risk aversion
Evaluarea articolului:
Articol 