Method for Determining the Risk Profile of Investors Based on the Relationship of Two Stock Investing Problems

Abstract

The subject of research in this paper is the investor’s risk profile as a characteristic of his behavior in the stock market. The purpose of the study is to assess the investor’s risk profile in the form of a risk ratio in a model with a linear convolution of expected return and variance. A financial consultant can use this information to create a portfolio offinancial instruments that corresponds with an investor’s acceptance of risk. This makes the study relevant because it addresses the problem of minimizing potential risks in the management of an investment portfolio, which is related to the investor’s attitude toward risk. The scientific novelty lies in the development of a mathematical approach to solving the problem of determining the risk profile based on the relationship between the solutions of two problems of choosing an investment portfolio, expressed as conditions on the parameters under which the solutions of these problems exist and coincide. Wherein, mathematical programming methods were used, as well as the Python programming language. As a result, the risk coefficient is expressed in terms of the model parameter with a constraint on profitability; a classification of the risk profile according to the acceptable value of the risk coefficient is proposed; the method is implemented as a set of programs and demonstrated on the example of the Russian stock market. The conclusion is made about the possibilities of trust managers using this approach when making decisions on choosing the best portfolio.

Keywords

• risk coefficient
• risk profile
• expected return
• criteria convolution
• investment portfolio