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Asymmetric vs. Symmetric Risk Preferences and Optimal Portfolio Selection

Posted by Thomas M. Anichini, CFA, Chief Investment Strategist on May 9, 2018 12:22:08 PM

assymetric imageWhile every investment practitioner knows (or should know) how to derive an efficient frontier under Modern Portfolio Theory (MPT), ask the next investment professional you meet how to select the most appropriate portfolio from the frontier. Chances are they won’t remember. The answer, of course, is to select the one that maximizes expected utility.

What the heck does “maximize expected utility” mean?

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Topics: behavioral finance, Business Insights, risk vs reward, BiCRRA, efficient frontier, CRRA, Relative Wealth Ratio, scoring of losses relative to gains, risk return tradeoff, portolio risk, assymetric risk, risk-neutral scoring

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