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Relative Risk Aversion And Portfolio Choice
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Book Synopsis Relative Risk Aversion and Portfolio Choice by : Pablo Muñoz Ceballos
Download or read book Relative Risk Aversion and Portfolio Choice written by Pablo Muñoz Ceballos and published by . This book was released on 2008 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: The aim of this paper is to show the expected utility theory over time and its evolution onto what is now known as the risk aversion theory. This paper also highlights the importance of the link between the relative risk aversion and the selection of an optimum investment portfolio (Relative Risk Aversion v/s Portfolio Choice).This document also encompasses the basic axioms or maxims applicable to the utility functions developed in microeconomics. It also includes topics such as making a choice under conditions of uncertainty and analysis of the existing expected utility models checking their consistency.Furthermore, in the same context, it carried out an analysis of the risk aversion theory developed by Pratt and Arrow by using the relative risk aversion as the main was of measuring risk. The consistency of the main existing models quoted in the current textbooks and related literature which links the risk tolerance with the portfolio choice is put to the test through a sample transacted at Santiago stock exchange.The paper goes on to suggest, on the basis of the theoretical development described in it, a new approach aimed atthe identification of optimum portfolios by means of the relative risk aversion approach.
Book Synopsis Risk Preference and Indirect Utility in Portfolio Choice Problems by : Santanu Roy
Download or read book Risk Preference and Indirect Utility in Portfolio Choice Problems written by Santanu Roy and published by . This book was released on 1995 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Does Relative Risk Aversion Vary with Wealth? Evidence from Households' Portfolio Choice Data by : Xuan Liu
Download or read book Does Relative Risk Aversion Vary with Wealth? Evidence from Households' Portfolio Choice Data written by Xuan Liu and published by . This book was released on 2016 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We test whether relative risk aversion varies with wealth using the Panel Study of Income Dynamics data in the U.S. Our analytical results indicate the following implications. For each household, there are two channels through which the risky share responds to wealth fluctuations, the income channel and the habit channel. For across households, there are heterogeneous responses through both the habit channel and the income channel. Finally, two potential misspecification problems on time-varying relative risk aversion arise when both heterogeneous responses through the habit channel and the responses through the income channel are ignored. Our main empirical findings are to show the importance of the income channel and the heterogeneous responses, and to provide strong evidence of relative risk aversion varying with wealth, after correcting two misspecification problems.
Book Synopsis Risk Aversion and Portfolio Choice by : Donald D. Hester
Download or read book Risk Aversion and Portfolio Choice written by Donald D. Hester and published by . This book was released on 1967 with total page 200 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asset Pricing and Portfolio Choice Theory by : Kerry Back
Download or read book Asset Pricing and Portfolio Choice Theory written by Kerry Back and published by Oxford University Press. This book was released on 2010-08-12 with total page 504 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Asset Pricing and Portfolio Choice Theory, Kerry E. Back at last offers what is at once a welcoming introduction to and a comprehensive overview of asset pricing. Useful as a textbook for graduate students in finance, with extensive exercises and a solutions manual available for professors, the book will also serve as an essential reference for scholars and professionals, as it includes detailed proofs and calculations as section appendices. Topics covered include the classical results on single-period, discrete-time, and continuous-time models, as well as various proposed explanations for the equity premium and risk-free rate puzzles and chapters on heterogeneous beliefs, asymmetric information, non-expected utility preferences, and production models. The book includes numerous exercises designed to provide practice with the concepts and to introduce additional results. Each chapter concludes with a notes and references section that supplies pathways to additional developments in the field.
Book Synopsis Behavioral Portfolio Choice Under Hyperbolic Absolute Risk Aversion by : Marcos Escobar
Download or read book Behavioral Portfolio Choice Under Hyperbolic Absolute Risk Aversion written by Marcos Escobar and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the optimal investment problem for a behavioral investor with probability distortion functions and an S-shaped utility function whose utility on gains satisfies the Inada condition at infinity, albeit not necessarily at zero, in a complete continuous-time financial market model. In particular, a piecewise utility function with hyperbolic absolute risk aversion (HARA) is applied. The considered behavioral framework, Cumulative Prospect Theory (CPT), was originally introduced by Tversky and Kahneman (1992). The utility model allows for increasing, constant or decreasing relative risk aversion. The continuous-time portfolio selection problem under the S-shaped HARA utility function in combination with probability distortion functions on gains and losses is solved theoretically for the first time, the optimal terminal wealth and its replicating wealth process and investment strategy are stated. In addition, conditions on the utility and the probability distortion functions for well-posedness and closed-form solutions are provided. A specific probability distortion function family is presented which fulfills all those requirements. This generalizes the work by Jin and Zhou (2008). Finally, a numerical case study is carried out to illustrate the impact of the utility function and the probability distortion functions.
Book Synopsis Economic and Financial Decisions under Risk by : Louis Eeckhoudt
Download or read book Economic and Financial Decisions under Risk written by Louis Eeckhoudt and published by Princeton University Press. This book was released on 2011-10-30 with total page 245 pages. Available in PDF, EPUB and Kindle. Book excerpt: An understanding of risk and how to deal with it is an essential part of modern economics. Whether liability litigation for pharmaceutical firms or an individual's having insufficient wealth to retire, risk is something that can be recognized, quantified, analyzed, treated--and incorporated into our decision-making processes. This book represents a concise summary of basic multiperiod decision-making under risk. Its detailed coverage of a broad range of topics is ideally suited for use in advanced undergraduate and introductory graduate courses either as a self-contained text, or the introductory chapters combined with a selection of later chapters can represent core reading in courses on macroeconomics, insurance, portfolio choice, or asset pricing. The authors start with the fundamentals of risk measurement and risk aversion. They then apply these concepts to insurance decisions and portfolio choice in a one-period model. After examining these decisions in their one-period setting, they devote most of the book to a multiperiod context, which adds the long-term perspective most risk management analyses require. Each chapter concludes with a discussion of the relevant literature and a set of problems. The book presents a thoroughly accessible introduction to risk, bridging the gap between the traditionally separate economics and finance literatures.
Book Synopsis Higher-Order Risk Preferences, Constant Relative Risk Aversion and the Optimal Portfolio Allocation by : Trino Manuel Ñíguez
Download or read book Higher-Order Risk Preferences, Constant Relative Risk Aversion and the Optimal Portfolio Allocation written by Trino Manuel Ñíguez and published by . This book was released on 2015 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive the conditions for the optimal portfolio choice within a constant relative risk aversion type of utility function considering alternative probability distributions that are able to capture the asymmetric and leptokurtic features of asset returns. We illustrate the role -- beyond risk aversion -- played by higher-order moments in the optimal decision to form a portfolio of risky assets. In particular, we show that higher-order risk attitudes such as prudence and temperance associated with the third and fourth moments of the distribution define different optimal portfolios than those constrained under risk aversion.
Book Synopsis The Decision to Purchase Information for Portfolio Choice by : James Russell Morris
Download or read book The Decision to Purchase Information for Portfolio Choice written by James Russell Morris and published by . This book was released on 1972 with total page 680 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Systemic Risk and International Portfolio Choice by : Sanjiv Ranjan Das
Download or read book Systemic Risk and International Portfolio Choice written by Sanjiv Ranjan Das and published by . This book was released on 2002 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Strategic Asset Allocation by : John Y. Campbell
Download or read book Strategic Asset Allocation written by John Y. Campbell and published by OUP Oxford. This book was released on 2002-01-03 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
Book Synopsis Asset Pricing and Portfolio Choice Theory by : Kerry E. Back
Download or read book Asset Pricing and Portfolio Choice Theory written by Kerry E. Back and published by Oxford University Press. This book was released on 2017-01-04 with total page 608 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the 2nd edition of Asset Pricing and Portfolio Choice Theory, Kerry E. Back offers a concise yet comprehensive introduction to and overview of asset pricing. Intended as a textbook for asset pricing theory courses at the Ph.D. or Masters in Quantitative Finance level with extensive exercises and a solutions manual available for professors, the book is also an essential reference for financial researchers and professionals, as it includes detailed proofs and calculations as section appendices. The first two parts of the book explain portfolio choice and asset pricing theory in single-period, discrete-time, and continuous-time models. For valuation, the focus throughout is on stochastic discount factors and their properties. A section on derivative securities covers the usual derivatives (options, forwards and futures, and term structure models) and also applications of perpetual options to corporate debt, real options, and optimal irreversible investment. A chapter on "explaining puzzles" and the last part of the book provide introductions to a number of additional current topics in asset pricing research, including rare disasters, long-run risks, external and internal habits, asymmetric and incomplete information, heterogeneous beliefs, and non-expected-utility preferences. Each chapter includes a "Notes and References" section providing additional pathways to the literature. Each chapter also includes extensive exercises.
Book Synopsis Portfolio Choice, Liquidity Constraints and Stock Market Mean Reversion by : Alex Michaelides
Download or read book Portfolio Choice, Liquidity Constraints and Stock Market Mean Reversion written by Alex Michaelides and published by . This book was released on 2001 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Portfolio Selection Under Partial Observation and Constant Relative Risk Aversion by : Simon Brendle
Download or read book Portfolio Selection Under Partial Observation and Constant Relative Risk Aversion written by Simon Brendle and published by . This book was released on 2004 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper is concerned with an optimal investment problem under incomplete information for an investor with constant relative risk aversion. We assume that the investor can only observe the asset prices, but not their instantaneous returns. The instantaneous returns are modeled by an Ornstein-Uhlenbeck process. We first assume that the initial distribution is Gaussian. In this case, we analytically solve the Bellman equation, and identify the optimal investment strategy under incomplete information. We study the relationship between the value function under partial observation and the value function under full observation, and derive a formula for the economic value of information. Furthermore, we outline how the optimal strategy under partial observation can be computed from the optimal strategy for an investor with full observation.In market with only one risky asset, we are able to derive closed form expressions for the value functions under both partial and full observation. We also provide an explicit formula for the economic value of information.Finally, we point out how our results in the Gaussian case can be extended to general non-Gaussian initial distributions.
Book Synopsis Systemic Risk and International Portfolio Choice by : Sanjiv Ranjan Das
Download or read book Systemic Risk and International Portfolio Choice written by Sanjiv Ranjan Das and published by . This book was released on 2009 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: Returns on international equities are characterized by jumps; moreover, these jumps tend to occur at the same time across countries leading to systemic risk. In this paper, we evaluate whether systemic risk reduces substantially the gains from international diversification. First, in order to capture these stylized facts, we develop a model of international equity returns using a multivariate system of jump-diffusion processes where the arrival of jumps is simultaneous across assets. Second, we determine an investor's optimal portfolio for this model of returns. Third, we show how one can estimate the model using the method of moments. Finally, we illustrate our portfolio optimization and estimation procedure by analyzing portfolio choice across a riskless asset, the US equity index, and five international indexes. Our main finding is that, while systemic risk affects the allocation of wealth between the riskless and risky assets, it has a small effect on the composition of the portfolio of only-risky assets, and reduces marginally the gains to a US investor from international diversification: For an investor with a relative risk aversion of 3 and a horizon of one year, the certainty-equivalent cost of ignoring systemic risk is of the order $1 for every $1000 of initial investment. These results are robust to whether the international indexes are for developed or emerging countries, to constraints on borrowing and shortselling, and to reasonable deviations in the value of the parameters around their point estimates; the cost increases with the investment horizon and decreases with risk aversion.
Book Synopsis Four Essays in the Theory of Uncertainty and Portfolio Choice by : Jonathan Eaton
Download or read book Four Essays in the Theory of Uncertainty and Portfolio Choice written by Jonathan Eaton and published by Dissertations-G. This book was released on 1979 with total page 248 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis On Risk Aversion and Portfolio Choice by : Swaminathan Sankaran
Download or read book On Risk Aversion and Portfolio Choice written by Swaminathan Sankaran and published by . This book was released on 1973 with total page 260 pages. Available in PDF, EPUB and Kindle. Book excerpt:
