Problem: How to Demonstrate the differences when minimising three different measures of risk.
There are a variety of ways to measure the
risk of a portfolio. In this model, you need to observe the changes in the optimal
investment allocations resulting from the minimisation of risk as measured in three
different ways and determine the best measure of risk for your lifestyle.
Variance is a measure of the fluctuation of the expected return. However, this measure of
risk considers a scenario that returns 5% above the target to be as desirable as a
scenario that returns 5% below the target. You're probably only worried about the risk
that the return will be below your target return.
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