Estimating Probabilities Relevant to Calculating Relative Risk-Corrected Returns of Alternative Portfolios
AbstractIn making all-or-none choices between alternative securities, Samuelson (1997) suggested that investors of different risk-aversion should calculate from past samples of those securities their relevant Harmonic Means, or Geometric means, or other associative means representative of their respective degrees of relative-risk-aversion. Here it is shown how this learning procedure can be improved upon when you have prior knowledge that the securities have log-Normal distributions. Classical estimation theory, concerning consistent, efficient, and sufficient statistics, is shown to have a cash value by means of the calculable measure of (ex ante) "risk-corrected certainty equivalents." Needed qualifications and testings are also presented. Copyright 1997 by Kluwer Academic Publishers
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Bibliographic InfoArticle provided by Springer in its journal Journal of Risk and Uncertainty.
Volume (Year): 15 (1997)
Issue (Month): 3 (December)
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Web page: http://www.springerlink.com/link.asp?id=100299
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