Optimizing a Portfolio Depending on the Attitude Towards Risk

Abstract

The risk is associated with the profitability of any security as well as with any economic activity. The actors of the financial market are differently placed in front of the risks, according to a series of criteria such as trading experience, the available capital, real time information possibilities, the ability to interprret the data, the intuition, etc. The psychological factor always had an essential role in taking certain risk doses. The analysis of the period prior to the recent financial crisis showed that an important number of the investors deliberately omitted the risk exposure considering wrongly that the level of the present financial market eliminates the possibility of a crisis to appear. The reality proved the opposite, reason for which we considered it necessary to present a few mathematical models to appreciate the attitude in front of risk. With this paper, the authors aim to point out that reality has proven the opposite, which is why we considered it necessary to present some mathematical models for assessing the attitude towards risk.

Keywords

• coefficient β
• portfolio of risky actions
• risk-averse portfolio
• variation of the return and the risk in relation to the weight of securities