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degree of pessimism of the representative agent is the mean of the individual ones weighted by their index of absolute risk …
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Deriving an optimal asset allocation for institutional investors hinges crucially on the quality of inputs used in the optimization. If the mean vector and the covariance matrix are known with certainty, the classical mean-variance optimization of Markowitz (1952) produces optimal portfolios....
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dividends next period as ambiguous. We calibrate the agent's ambiguity aversion to match only the first moment of the risk …
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