Article ID: | iaor200937794 |
Country: | Germany |
Volume: | 165 |
Issue: | 1 |
Start Page Number: | 161 |
End Page Number: | 185 |
Publication Date: | Jan 2009 |
Journal: | Annals of Operations Research |
Authors: | Palma Andr, Prigent JeanLuc |
Keywords: | risk |
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.