A Note on Finding the Optimal Allocation Between a Risky Stock and a Risky Bond

John E. Angus

Journal of Futures Markets, 2001, vol. 21, issue 12, 1181-1196

Abstract: The allocation of financial assets among securities with different levels of risk is an essential topic in the study, analysis, and strategic use of derivative securities and markets. In a recent paper, Browne (1999) determined the optimal allocation strategy for dividing investments between a risky stock and a risky bond. In this note, Browne's equation determining the optimal strategy is studied and some methods are described for solving it. In addition, some useful rules‐of‐thumb, computational methods, and approximation techniques are presented. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:1181–1196, 2001

Date: 2001
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