157 Economics Tauchen
Notes on Telser's Criterion
Fall 1999
Telser's criterion is to maximize subject to
p = Erp ;
Prrp rL ; where rp is the portfolio return, is a small number, e.g., = 0:05 and rL is some predetermined lower limit. If returns are normally distributed then Prrp rL = Pr rp , rL p , p = rL , p :
p p p
If = 0:05; then to ensure the constraint Prrp rL = 0:05 is satis ed, we must have
rL , p
p
,1:65:
1
Another way to write the constraint 1 is
p ...