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A New Light on Old Insight: Optimal Risk Taking with Quadratic Utility


Jung Lim Koo


Xiamen University - The Wang Yanan Institute for Studies in Economics (WISE)

Se Ryoong Ahn


Department of Business Administration, Ajou University

Byung Lim Koo


Xiamen University - The Wang Yanan Institute for Studies in Economics (WISE)

Hyeng Keun Koo


Ajou University

Yong Hyun Shin


Department of Mathematics, Sookmyung Women's University
April 7, 2012


Abstract:     
In this note we analyze the risk taking behavior of an agent who has a quadratic felicity function. The agent's optimal investment in risky assets increases linearly for low wealth levels. The agent's risk taking reaches a maximum at a certain threshold wealth level and declines for all wealth beyond the threshold. Eventually her risk taking becomes zero at a wealth level which supports her bliss consumption.

Number of Pages in PDF File: 8

Keywords: portfolio selection, consumption, quadratic utility

JEL Classification: D11, D91, G11

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Date posted: April 15, 2012  

Suggested Citation

Koo, Jung Lim, Ahn, Se Ryoong, Koo, Byung Lim, Keun Koo, Hyeng and Shin, Yong Hyun, A New Light on Old Insight: Optimal Risk Taking with Quadratic Utility (April 7, 2012). Available at SSRN: http://ssrn.com/abstract=2039325 or http://dx.doi.org/10.2139/ssrn.2039325

Contact Information

Jung Lim Koo
Xiamen University - The Wang Yanan Institute for Studies in Economics (WISE) ( email )
A 307, Economics Building, Xiamen University
Xiamen, Fujian 361005
China
86-15396282105 (Phone)
Se Ryoong Ahn
Department of Business Administration, Ajou University ( email )
Suwon 443-749
Korea
Byung Lim Koo
Xiamen University - The Wang Yanan Institute for Studies in Economics (WISE) ( email )
A 307, Economics Building, Xiamen University
Xiamen, Fujian 361005
China
Hyeng Keun Koo
Ajou University ( email )
Suwon 443-749
Korea
82-31-219-2706 (Phone)
82-31-219-1616 (Fax)
Yong Hyun Shin (Contact Author)
Department of Mathematics, Sookmyung Women's University ( email )
Cheongpa-ro 47-gil 100,
Yongsan-Ku,
Seoul,, 140-742
Korea, Republic of
+82-2-2077-7682 (Phone)
+82-2-2077-7323 (Fax)
HOME PAGE: http://sites.google.com/site/yonghyunshin1972/
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