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; and


-          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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