Examples_lecture-03

Examples_lecture-03 - Risk Aversion Utility Given all the...

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Fall 2010 Investment Management, 1 Risk Aversion, Utility Ø Given all the choices on the CAL, what is the optimal allocation for the investor? What is the allocation that provides the highest expected utility? Ø Recall our representative investor’s preferences provided by the utility function U = E(r) – 0.5 A 2 Ø We can calculate and plot the utility levels as a function of the weight on the risky portfolio P as follows.
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Examples_lecture-03 - Risk Aversion Utility Given all the...

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