Chap006 Risk Aversion and Capital Allocation to Risky Assets 博迪投资学教材.pptVIP

6-* Bodie, Kane and Marcus Slides by Susan Hine McGraw-Hill/Irwin Copyright ? 2009 by The McGraw-Hill Companies, Inc. All rights reserved. CHAPTER 6 Risk Aversion and Capital Allocation to Risky Assets Risk and Risk Aversion Speculation Considerable risk Sufficient to affect the decision Commensurate gain Gamble Bet or wager on an uncertain outcome Risk Aversion and Utility Values Risk averse investors reject investment portfolios that are fair games or worse These investors are willing to consider only risk-free or speculative prospects with positive risk premiums Intuitively one would rank those portfolios as more attractive with higher expected returns Table 6.1 Available Risky Portfolios (Risk-free Rate = 5%) Utility Function Where U = utility E ( r ) = expected return on the asset or portfolio A = coefficient of risk aversion s2 = variance of returns Estimating Risk Aversion Observe individuals’ decisions when confronted with risk Observe how much people are willing to pay to avoid risk Insurance against large losses Figure 6.2 The Indifference Curve Table 6.3 Utility Values of Possible Portfolios for an Investor with Risk Aversion, A = 4 Table 6.4 Investor’s Willingness to Pay for Catastrophe Insurance Capital Allocation Across Risky and Risk-Free Portfolios Control risk Asset allocation choice Fraction of the portfolio invested in Treasury bills or other safe money market securities The Risky Asset Example Total portfolio value = $300,000 Risk-free value = 90,000 Risky (Vanguard Fidelity) = 210,000 Vanguard (V) = 54% Fidelity (F) = 46% The Risky Asset Example Continued Vanguard 113,400/300,000 = 0.378 Fidelity 96,600/300,000 = 0.322 Portfolio P 210,000/300,000 = 0.700 Risk-Free Assets F 90,000/300,000 = 0.300 Portfolio C 300,000/300,000 = 1.000 The Risk-Free Asset Only the government can issue default-free bonds Guaranteed real rat