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Utility theory, indifference curves and indifference maps play an important role in Asset Allocation. To build an indifference curve, we can first find the utility
Utility theory, indifference curves and indifference maps play an important role in Asset Allocation. To build an indifference curve, we can first find the utility of a portfolio with 100% in the risk-free asset, then find the utility of a portfolio with 0% in the risk-free asset. change the risk-free rate and find the utility level that results in the same standard deviation. find another utility level with 0% risk. change the standard deviation of the portfolio and find the expected return the investor would require to maintain the same utility level. change the expected return of the portfolio and equate the utility to the standard deviation
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