Risk Limited Asset Allocation with a Budget Threshold Utility Function and Leptokurtotic Distributions of Returns

Graham L Giller

Papers from arXiv.org

Abstract: An analytical solution to single-horizon asset allocation for an investor with a piecewise-linear utility function, called herein the "budget threshold utility," and exogenous position limits is presented. The resulting functional form has a surprisingly simple structure and can be readily interpreted as representing the addition of a simple "risk cost" to otherwise frictionless trading.

Date: 2025-12, Revised 2025-12
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