Inputing Risk Aversion into the Portfolio Workflow

Hi,

I was wondering if anyone had any idea how to input risk aversion into the Portfolio Workflow. I'm trying to solve for the situation where optimisation is constrained (no risk-free asset, no borrowing or lending) and investors have varying degree's of risk aversion.

Any information would be appreciated.

J

Answer 1

[Jaskirat]

Hello @Jeff Martin,

To model varying degrees of risk aversion, you can use the “portalloc” function:

[RiskyRisk, RiskyReturn, RiskyWts,...] = ...
 portalloc(PortRisk, PortReturn, PortWts, NaN, NaN, A);

“BorrowRate=NaN” will forbid borrowing and lending, and the value of “A” can control risk aversion.

The following documentation links provide more information about the function and handling risk aversion:

https://www.mathworks.com/help/finance/portalloc.html

https://www.mathworks.com/help/finance/portfolio-selection-and-risk-aversion.html

Hope this helps!