Estimating Probabilities Relevant to Calculating Relative Risk-Corrected Returns of Alternative Portfolios.
In making all-or-none choices between alternative securities, Samuelson (1997) suggested that investors of different risk-aversion should calculate from past samples of those securities their relevant Harmonic Means, or Geometric means, or other associative means representative of their respective degrees of relative-risk-aversion. Here it is shown how this learning procedure can be improved upon when you have prior knowledge that the securities have log-Normal distributions. Classical estimation theory, concerning consistent, efficient, and sufficient statistics, is shown to have a cash value by means of the calculable measure of (ex ante) "risk-corrected certainty equivalents." Needed qualifications and testings are also presented. Copyright 1997 by Kluwer Academic Publishers
Year of publication: |
1997
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Authors: | Samuelson, Paul A |
Published in: |
Journal of Risk and Uncertainty. - Springer. - Vol. 15.1997, 3, p. 191-200
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Publisher: |
Springer |
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