You are trying to construct an optimal portfolio for a client with a risk aversion coefficient of
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Question:
- You are trying to construct an optimal portfolio for a client with a risk aversion coefficient of A=4. You candidate assets are riskless asset with an expected return of 7% and a risky portfolio with expected return of 10% and volatility of 18%. Perform the following tasks in Excel
- calculate the utility function for this investor by changing the risky asset weights from 0 to 1 with a 0.05 increment.
- Identify the optimal portfolio by identifying risk asset weights which gives the maximum utility value
- Calculate the optimal risky asset weights by using the solution we developed in the lecture notes
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