F420-3 - Asset Allocation BUS-F420 Click to edit Master...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
Click to edit Master subtitle style BUS-F420 Asset Allocation January 20, 2011
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Announcements: Reminder: Case 1 – Harvard Management Co, will be due 2/1 Roles for cases will be assigned tomorrow Everybody should have a group by now
Background image of page 2
Today: Risk Aversion Portfolios of one risky and one risk free asset Capital Allocation Line
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
Estimating Risk Aversion Observe individuals’ decisions when confronted with risk Observe how much people are willing to pay to avoid risk Insurance against large losses
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Estimating Risk Aversion Example 1: Which of the following would you prefer: $100 $200 with a 50% chance or nothing If you chose the first one you are risk averse (at least with respect to this gamble)
Background image of page 6
Estimating Risk Aversion Example 2: How much would you be willing to pay to take for the following gamble?: $100 with prob=1/2 $0 with prob = 1/2 If you are willing to pay less than $50, you are risk averse
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Modeling Risk Aversion Can be formally modeled using a Utility Function: For example, U = E(r) – ½ Aσ2 A is an index of the investor’s risk aversion
Background image of page 8
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Asset Allocation Asset Allocation: Choosing among broad asset classes such as stocks versus bonds.
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/07/2011 for the course BUS-F 420 taught by Professor Israelison during the Spring '11 term at Indiana.

Page1 / 28

F420-3 - Asset Allocation BUS-F420 Click to edit Master...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online