Use this dialog to set the parameters such as the risk-free rate, risk aversion, etc.
Bank Deposit Rate – continuously compounded bank deposit rate. Can be considered as the dividend yield Fixed interest rate paid on the asset which is not reflected in its price. For a fixed rate bank account it is equal to the corresponding interest rate. For exchange rates it is equal to the difference between foreign and domestic rates. For futures it reflects the cost of carry. For coupon bonds it is equal to the coupon yield. In SmartFolio it is expressed in the form of continuously compounded rate. in Cash.
Relative Risk Aversion – relative risk aversion CRRA utility function parameter which determines degree of investor's attitude to risk. For risk aversed investors this parameter takes positive values. The more is the corresponding value, the more is utility function curvature, which leads to more conservative portfolio strategies. Parameter value equal to 0 corresponds to a risk-neutral investor. An investor who is interested only in his portfolio expected growth rate has relative risk aversion equal to 1. It is widely accepted that for most investors this parameter takes values in the range between 2 and 4. parameter
Target Excess Rate – target excess growth rate The difference between growth rate which the investor demands on his investments and the Risk-free rate. All rates are continuously compounded.
Worst-Case Confidence Level – worst-case confidence level Confidence level used as the parameter in worst-case scenario optimization. The closer this value to 100%, the wider is the space of admissible scenarios (admissible realizations of the Mu vector), which leads to more conservative portfolio.
Horizon (periods) – VaR time horizon
Confidence Level – VaR confidence level
Initial Consumption – initial consumption Parameter of Portfolio insurance strategy. Determines a fraction of the initial wealth which is transferred into Secured wealth at the start of the investment process.
Consumption Rate – consumption rate Parameter of Portfolio insurance strategy. Determines a fraction of profits which is transferred into Secured wealth each time Aggregate wealth reaches new historical maximum.