Exponential risk measure with application to UK asset allocation

Stephen Satchell, David Damant and Soosung Hwang ()

Applied Mathematical Finance, 2000, vol. 7, issue 2, 127-152

Abstract: In the paper the exponential risk measure of Damant and Satchell is used to formulate an investor's utility function and the properties of this function are investigated. The utility function is calibrated for a typical UK investor who would hold different proportions of equity. It is found that, for plausible parameter values, a typical UK investor will hold more equity under the assumption of non-normality of return if his utility function has the above formulation and not the standard mean-variance utility function. Furthermore, our utility function is consistent with positive skewness affection and kurtosis aversion. Some aggregate estimates of risk parameters are calculated for the typical UK investor. These do not seem well determined, raising issues of the roles of aggregation and wealth in this model.

Keywords: Exponential Risk Measure Utility Function Skewness Kurtosis Capm Downside Risk Asset Allocation (search for similar items in EconPapers)
Date: 2000
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DOI: 10.1080/13504860010014502

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