Risk Aversion and Portfolio Selection in a Continuous-Time Model

Details Risk Aversion and Portfolio Selection in a Continuous-Time Model Risk Aversion and Portfolio Selection in a Continuous-Time Model

2008-05-05

arxiv.org/abs/0805.0618v3

Economy

Quantitative Finance

Portfolio Management

Published in SIAM Journal on Control and Optimization after a major revision

Scientific paper

The comparative statics of the optimal portfolios across individuals is carried out for a continuous-time complete market model, where the risky assets price process follows a joint geometric Brownian motion with time-dependent and deterministic coefficients. It turns out that the indirect utility functions inherit the order of risk aversion (in the Arrow-Pratt sense) from the von Neumann-Morgenstern utility functions, and therefore, a more risk-averse agent would invest less wealth (in absolute value) in the risky assets.

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