Indifference Curve

A

allalongthewatc

New member
Joined
Nov 25, 2013
Messages
0
Reaction score
0
I understand what an indifference curve is–it tells us how much return does an investor want for a given level of risk. However, if I have to find out my indifference curve, how do I do it in practice? I’d appreciate any practical insights on how portfolio management is done.
Thanks
 
In practice we don’t get these indifference curves exactly; at best we get a sense of how steep they are. We’ll have a client fill out a questionnaire, and from his answers we’ll determine that he is not very risk averse (his indifference curves are relatively flat; maybe he needs an extra 1% return for an extra 5% in standard deviation of returns), or he is very risk averse (his indifference curves are relatively steep: he needs an extra 4% return for an extra 1% standard deviation of returns), or he is somewhere in between.
It’s honestly not very precise.
 
You must log in or register to reply here.
Back
Top