RiskAversionandCapitalAllocationtoRiskyAssets文件材料.pptVIP

INVESTMENTS | BODIE, KANE, MARCUS INVESTMENTS | BODIE, KANE, MARCUS Copyright ? 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 6 Risk Aversion and Capital Allocation to Risky Assets Allocation to Risky Assets Investors will avoid risk unless there is a reward. The utility model gives the optimal allocation between a risky portfolio and a risk-free asset. Table 6.1 Available Risky Portfolios (Risk-free Rate = 5%) Each portfolio receives a utility score to assess the investor’s risk/return trade off Utility Function U = utility E ( r ) = expected return on the asset or portfolio A = coefficient of risk aversion s2 = variance of returns ? = a scaling factor Table 6.2 Utility Scores of Alternative Portfolios for Investors with Varying Degree of Risk Aversion Mean-Variance (M-V) Criterion Portfolio A dominates portfolio B if: And Estimating Risk Aversion Use questionnaires Observe individuals’ decisions when confronted with risk Observe how much people are willing to pay to avoid risk Capital Allocation Across Risky and Risk-Free Portfolios Asset Allocation: Is a very important part of portfolio construction. Refers to the choice among broad asset classes. Controlling Risk: Simplest way: Manipulate the fraction of the portfolio invested in risk-free assets versus the portion invested in the risky assets Basic Asset Allocation Total Market Value $300,000 Risk-free money market fund $90,000 Equities $113,400 Bonds (long-term) $96,600 Total risk assets $210,000 It’s possible to create a complete portfolio by splitting investment funds between safe and risky assets. Let y=portion allocated to the risky portfolio, P (1-y)=portion to be invested in risk-free asset, F. Portfolios of One Risky Asset and a Risk-Free Asset rf = 7% ?rf = 0% E(rp) = 15% ?p = 22% y = % in p (1-y) = % in rf Example Using Chapter 6.4 Numbers Example (Ctd.) The expected return on the complete portfolio is the risk-free rate plus the weight of P times