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Choosing and Using Utility Functions in Forming Portfolios

Warren, Geoffrey


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]

CollectionsANU Research Publications
Date published: 2019
Type: Journal article
Source: Financial Analysts Journal
DOI: 10.1080/0015198X.2019.1618109


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