Choosing and Using Utility Functions in Forming Portfolios
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Utility functions offer a means to encode objectives and preferences in investor portfolios. The functions allow one to place a score on outcomes and then identify optimal portfolios by maximizing utility. The central theme of this article is that utility functions should be tailored to the investor. I discuss how an appropriate function might be chosen and demonstrate concepts for power utility and reference-dependent utility. A modeling approach is presented that may be applied...[Show more]
|Collections||ANU Research Publications|
|Source:||Financial Analysts Journal|
|01_Warren_Choosing_and_Using_Utility_2019.pdf||916.05 kB||Adobe PDF|
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