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Investment portfolio construction method and system

  • US 7,050,998 B1
  • Filed: 09/27/2000
  • Issued: 05/23/2006
  • Est. Priority Date: 09/27/1999
  • Status: Expired due to Fees
First Claim
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1. A computer-implemented method of allocating investment funds to a plurality of assets to construct an investment portfolio having a utility defined by at least a first function U1 for positive rates of returns and a second function U2 for negative rates of returns, the computer-implemented method comprising:

  • selecting a plurality of assets in the portfolio; and

    allocating the investment funds to the said plurality of assets to maximize an expected utility of the investment portfolio;

    wherein the at least first function U1 is a log-utility function wherein said log-utility function is at least characterized by the following;


    U1=1+ln(1+r) for r≧

    0where U1 presents the portfolio'"'"'s utility to the portfolio holder, r represents the portfolio'"'"'s return, and 1n is a symbol for natural logarithm, and wherein the at least second function U2 is a power-utility function wherein said power-utility function is at least characterized by the following;

    U 2 = 1 Y

    [ ( I + r ) y + Y - L ]






    f



    o



    r



    r
    <

    0
    where U2 represents the portfolio'"'"'s utility to the portfolio holder, r represents the portfolio'"'"'s return, and γ

    represents the loss-aversion of the portfolio holder and has a value of less than or equal to 0.

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