1
$\begingroup$

Are there any "typical" risk-aversion parameters for power utility function and exponential utility function? Once I've seen an articel, in which author stated that for extremely risky person gamma in power utility function is approximately 40 and there is virtually no upper bound for risk-aversive individuals (up to 200+). But since than I have not seen any paper devoted to this with some kind of a range for a parameter.

In my study I have simulated 10,000 returns of some stocks for each of 50 weeks ahead. I am using power utility function. Computing optimal portfolio, I have arrived at strange results: for values of gamma(risk-aversion parameter) 2,6,10 there is no pattern. For values, for example, 10,20,30 - there is a pattern: more risky individual lose money more. So, the second question is about the pattern. Is there any common pattern for returns in the context of utility function? Like "the more risky you are, the more you lose"?

Any help would be greatly appreciated! Thank you in advance!

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.