Whitepaper - November 2019

What Risk-Aversion Parameter Should I Use? And Should I Care?

The quadratic utility function balances two conflicting objectives: more return and less risk. It is a way to pick one portfolio on the efficient frontier. Investors initially assumed that the active risk aversion parameter was the same as the total risk aversion parameter, but we show that they are different and ask the question – is this still relevant today?

Authors

Dominic Clermont

Director, Portfolio Solutions