Risk tolerance Your tolerance for bearing risk is a major determinant of portfolio choices It is the mirror image of risk aversion Whatever its cause,we do not distinguish between capacity to bear risk and attitude towards risk THE COURSE OF FINANCE 2017 SPRING SJTU 11
Risk Tolerance Your tolerance for bearing risk is a major determinant of portfolio choices It is the mirror image of risk aversion Whatever its cause, we do not distinguish between capacity to bear risk and attitude towards risk THE COURSE OF FINANCE 2017 SPRING SJTU 11
Role of Professional Asset Managers Most people have neither the time nor the skill necessary to optimize a portfolio for risk and return Professional fund managers provide this service as individually designed solutions to the precise needs of a customer (SSSS) a set of financial products which may be used together to satisfy most customer goals (SS) THE COURSE OF FINANCE 2017 SPRING SJTU 12
Role of Professional Asset Managers Most people have neither the time nor the skill necessary to optimize a portfolio for risk and return Professional fund managers provide this service as individually designed solutions to the precise needs of a customer ($$$$) a set of financial products which may be used together to satisfy most customer goals ($$) THE COURSE OF FINANCE 2017 SPRING SJTU 12
12.2 Trade-Off between Expected Return and Risk Assume a world with a single risky asset and a single riskless asset The risk-free(riskless)asset is a default-free bond with the same maturity as the investor's decision (or possibly the trading)horizon(dfn.of riskless) The assumption of a risky and riskless security simplifies the analysis THE COURSE OF FINANCE 2017 SPRING SJTU 13
12.2 Trade-Off between Expected Return and Risk Assume a world with a single risky asset and a single riskless asset The risk-free(riskless) asset is a default-free bond with the same maturity as the investor’s decision (or possibly the trading) horizon(dfn. of riskless) The assumption of a risky and riskless security simplifies the analysis THE COURSE OF FINANCE 2017 SPRING SJTU 13