Portfolio Selection with Random Risk Preference
Turan Bulmus
Broschiertes Buch

Portfolio Selection with Random Risk Preference

A mathematical approach to portfolio selection problem concerning random risk tolerance

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In this study, I analyzed a single-period portfolio selection problem where the investor maximizes the expected utility of the terminal wealth. The utility function is exponential, but the Pratt-Arrow measure of absolute risk aversion or risk tolerance is random. This is due to the random variations in individual's decisions concerning stochastic choice. It is well- known that the investor is memoryless in wealth for exponential utility functions with a constant risk tolerance. In other words, the investment portfolio consisting of risky stocks does not depend on the level of wealth. However, ...