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Optimal financial portfolio and dependence of risky assets

Author

Listed:
  • Kais Dachraoui

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Georges Dionne

    (HEC Montreal, Canada Research Chair in Risk Management)

Abstract

In this note we analyze the hedging property of an optimal portfolio with one risk-free asset and two risky assets. We make a restriction on the dependence between the two risky assets and show that the sign of the covariance is necessary and sufficient to set the relative investments in the two risky assets of the portfolio for all concave utility functions. One application of our result concerns derivatives with linear payoffs. We also show how our model is related to the mutual fund separation condition proposed by Ross (1978).

Suggested Citation

  • Kais Dachraoui & Georges Dionne, 2000. "Optimal financial portfolio and dependence of risky assets," Working Papers 00-12, HEC Montreal, Canada Research Chair in Risk Management.
    • Handle: RePEc:ris:crcrmw:2000_012
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    Cited by:

    1. is not listed on IDEAS
    2. DENUIT, Michel & SAILLET, Olivier, 2001. "Nonparametric Tests for Positive Quadrant Dependence," LIDAM Discussion Papers IRES 2001009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 01 Apr 2001.
    3. Satya P. DAS & Chetan CHATE, 2001. "Endogenous Distribution, Politics, and Growth," LIDAM Discussion Papers IRES 2001019, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

    More about this item

    Keywords

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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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