ON THE SHAPE OF RISK AVERSION AND ASSET ALLOCATION

Pierre Six ()
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Pierre Six: Finance Department, Neoma Business School, 1 rue du Maréchal Juin, 76825 Mont Saint Aignan, Cedex, France

International Journal of Theoretical and Applied Finance (IJTAF), 2014, vol. 17, issue 08, 1-27

Abstract: This paper demonstrates the simple incorporation of any shape of risk aversion into an asset allocation framework. Indeed, the relevant literature about risk aversion shows mixed evidence regarding the shape of this important but subjective variable. Our setting builds on, and can be compared with, the well-known constant relative risk aversion (CRRA) framework and mostly preserves the tractability of the affine-CRRA framework. Our numerical analysis exhibits some link between measures of risk aversions and empirical studies of asset allocation.

Keywords: Risk aversion; asset allocation; mean-reversion; wealth; options; G11 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1142/S021902491450054X

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