Journal ArticleDOI
The Efficiency Analysis of Choices Involving Risk
Giora Hanoch,Haim Levy +1 more
TLDR
In this paper, an analysis of the first step of the decision-making process of an individual decision maker among alternative risky ventures is presented, in terms of a single dimension such as money, both for the utility functions and for the probability distributions.Abstract:
Publisher Summary The choice of an individual decision maker among alternative risky ventures may be regarded as a two-step procedure. The decision maker chooses an efficient set among all available portfolios, independently of his tastes or preferences. Then, the decision maker applies individual preferences to this set to choose the desired portfolio. The subject of this chapter is the analysis of the first step. It deals with optimal selection rules that minimize the efficient set by discarding any portfolio that is inefficient in the sense that it is inferior to a member of the efficient set, from point of view of each and every individual, when all individuals' utility functions are assumed to be of a given general class of admissible functions. The analysis presented in the chapter is carried out in terms of a single dimension such as money, both for the utility functions and for the probability distributions. However, the results may easily be extended, with minor changes in the theorems and the proofs, to the multivariate case. The chapter explains a necessary and sufficient condition for efficiency, when no further restrictions are imposed on the utility functions. It presents proofs of the optimal efficiency criterion in the presence of general risk aversion, that is, for concave utility functions.read more
Citations
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Journal ArticleDOI
Stochastic Dominance and Risk Measure: A Decision-Theoretic Foundation for VaR and C-VaR
Chenghu Ma,Wing-Keung Wong +1 more
TL;DR: In this paper, the authors established some behavior foundations for various types of VaR models, including VaR and conditional-VaR, as measures of downside risk, and provided arguments for and against the standard deviation versus VaR, and conditional VaR as objective and quantifiable measures of risk in the context of portfolio choice.
Journal ArticleDOI
The benefits of differential variance-based constraints in portfolio optimization
Haim Levy,Moshe Levy +1 more
TL;DR: Comparing ten optimization methods, it is found that the two new suggested methods typically yield the best performance, as measured by the Sharpe ratio, and GVBC ranks first.
Posted Content
Bonds Versus Stocks: Investors' Age and Risk Taking
TL;DR: In this article, the authors examined the proportion of wealth invested in stock and bond portfolios as a function of the investors' age, i.e., investment horizon, and found that, for short investment horizons, all portfolios are efficient.
Journal ArticleDOI
Admissible portfolios for all individuals
TL;DR: In this paper, the authors proposed a mean-variance selection rule for the portfolio selection problem for risk-averse individuals and showed that it is the asymptotically optimal selection rule when the distribution of portfolio returns is normal.
Journal ArticleDOI
Deterministic transformations of random variables and the comparative statics of risk
Jack Meyer,Michael B. Ormiston +1 more
TL;DR: In this paper, a general class of deterministic transformations that can be interpreted as changes in risk are identified, and a particular subclass of these transformations, termed simple transformations, is shown to be well suited for comparative static analyses.
References
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Journal ArticleDOI
Capital asset prices: a theory of market equilibrium under conditions of risk*
TL;DR: In this paper, the authors present a body of positive microeconomic theory dealing with conditions of risk, which can be used to predict the behavior of capital marcets under certain conditions.
Journal ArticleDOI
The Utility Analysis of Choices Involving Risk
TL;DR: In this paper, the authors suggest that an important class of reactions of individuals to risk can be rationalized by a rather simple extension of orthodox utility analysis, i.e., individuals frequently must, or can, choose among alternatives that differ, among other things, in the degree of risk to which the individual will be subject.
Journal ArticleDOI
The Existence of Probability Measures with Given Marginals
TL;DR: In this article, the existence of probability distributions with given marginals is studied under typically weaker assumptions, than those which are required by the use of Theorem 1, and necessary and sufficient conditions for a sequence of probability measures to be the sequence of distributions of a martingale, an upper semi-martingale or of partial sums of independent random variables.