Lecture $11-$ Tactical asset allocation

You are an investor with a risk aversion of $5$ considering investing into a portfo$-$

lio of two assets with a long term return of $[0\mathrm{.}08,0\mathrm{.}10{]}^{\text{'}},$ a covariance matrix of

$\left[\begin{array}{cc}0\mathrm{.}0225& 0\mathrm{.}015\\ 0\mathrm{.}015& \mathrm{.}04\end{array}\right]$ and you expect for the coming time period asset $1$ to perform

$2\%$ better than the long$-$term average and asset $23\%$ worse. What would be your

strategic, tactical and total portfolio?

What effect does an increasing risk aversion have on the strategic and tactical port$-$

folio?