Chicago Johannesburg London Portland Princeton San Francisco Stamford Tokyo Toronto WashingtonBoston Meeting: Discretionary Wealth Meets Bayesian Logic
Tuesday, May 19, 2009 - 6:15pm
3rd Floor of the Tennis & Racquet Club, 939 Boylston Street [call 617-536-4630 for directions]
Discretionary Wealth Meets Bayesian Logic
Speaker: Jarrod Wilcox
The discretionary wealth approach derives an appropriate risk aversion parameter from an extended balance sheet including present values of future financial committments and sources of contribution to the investment portfolio. It assumes the goal is long-run maximization of median wealth without hitting intermediate shortfall points. In this, it supplies the missing risk aversion parameter for conventional Markowitz mean-variance optimization. But what if we instead marry this approach with portfolio optimization according to fully-Bayesian logic? The ensuing exploration illuminates the portfolio construction problem and appears to provide better answers for difficult cases such as long-short portfolios. It also opens the door to a comprehensive treatment of uncertainty in proper risk aversion stemming from challenges such as longevity risk.
Speaker: Jarrod Wilcox
The discretionary wealth approach derives an appropriate risk aversion parameter from an extended balance sheet including present values of future financial committments and sources of contribution to the investment portfolio. It assumes the goal is long-run maximization of median wealth without hitting intermediate shortfall points. In this, it supplies the missing risk aversion parameter for conventional Markowitz mean-variance optimization. But what if we instead marry this approach with portfolio optimization according to fully-Bayesian logic? The ensuing exploration illuminates the portfolio construction problem and appears to provide better answers for difficult cases such as long-short portfolios. It also opens the door to a comprehensive treatment of uncertainty in proper risk aversion stemming from challenges such as longevity risk.
