Standardized versus customized portfolio: a compensating variation approach

André Palma and Jean-Luc Prigent

Annals of Operations Research, 2009, vol. 165, issue 1, 185 pages

Abstract: We consider the investor choice among standardized portfolios, which are based on cash, bond and stock indexes. We present the intertemporal optimization problem with commonly used utility functions. We provide a method to determine the optimal investor’s choice, based on the knowledge of investor’s type (risk aversion and time horizon) and on market performances. For the utility functions envisaged, we compute the losses from not having access to a customized portfolio and show these losses may be severe. Copyright Springer Science+Business Media, LLC 2009

Date: 2009
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DOI: 10.1007/s10479-008-0447-6

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