Search results
Results from the WOW.Com Content Network
Mossin [2] showed that under HARA utility, optimal portfolio choice involves partial time-independence of decisions if there is a risk-free asset and there is serial independence of asset returns: to find the optimal current-period portfolio, one needs to know no future distributional information about the asset returns except the future risk ...
Merton's portfolio problem is a problem in continuous-time finance and in particular intertemporal portfolio choice.An investor must choose how much to consume and must allocate their wealth between stocks and a risk-free asset so as to maximize expected utility.
The expected utility hypothesis imposes limitations on the utility function and makes utility cardinal (though still not comparable across individuals). Although the expected utility hypothesis is standard in economic modelling, it has been found to be violated in psychological experiments.
The CAPM can be derived from the following special cases of the CCAPM: (1) a two-period model with quadratic utility, (2) two-periods, exponential utility, and normally-distributed returns, (3) infinite-periods, quadratic utility, and stochastic independence across time, (4) infinite periods and log utility, and (5) a first-order approximation ...
This page was last edited on 16 September 2016, at 16:51 (UTC).; Text is available under the Creative Commons Attribution-ShareAlike 4.0 License; additional terms may apply.
Exponential utility implies constant absolute risk aversion (CARA), with coefficient of absolute risk aversion equal to a constant: ″ ′ =. In the standard model of one risky asset and one risk-free asset, [1] [2] for example, this feature implies that the optimal holding of the risky asset is independent of the level of initial wealth; thus on the margin any additional wealth would be ...
In a model of intertemporal portfolio choice, the objective would be to maximize the expected value or expected utility of final period wealth. Since investment returns in each period generally would not be known in advance, the constraint effectively imposes a limit on the amount that can be invested in the final period—namely, whatever the ...
The expected utility model developed by John von Neumann and Oskar Morgenstern dominated decision theory from its formulation in 1944 until the late 1970s, not only as a prescriptive, but also as a descriptive model, despite powerful criticism from Maurice Allais and Daniel Ellsberg who showed that, in certain choice problems, decisions were ...