Extreme Events – Specimen Question
A.6.2(b) – Answer/Hints
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Q. What additional
information would you need before you could decide what is the most suitable
asset allocation for this portfolio?
The most important additional pieces of information that you
would need are:
The degree of credibility to give to the ‘market’ in such a computation;
The risk aversion of the investor, in effect the value of (the
risk/return trade-off factor) that should be used in any subsequent
optimisation exercise for the client in question.
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