UTILITY FUNCTION-BASED LOSS PORTFOLIO: MODELING, VALUATION, AND SELECTION
The portfolio is a model that can be used to construct an aggregate of two large losses that are independent and identically distributed. The portfolio model in this study uses gamma and Weibull distributions. Currently, the portfolio model does not consider the preferences of investors. Therefor...
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| Format: | Theses |
| Language: | Indonesia |
| Online Access: | https://digilib.itb.ac.id/gdl/view/79901 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | The portfolio is a model that can be used to construct an aggregate of two large
losses that are independent and identically distributed. The portfolio model in this
study uses gamma and Weibull distributions. Currently, the portfolio model does not
consider the preferences of investors. Therefore, there is a need for a function that can
accommodate the flexibility of investor preferences. In particular, the function used
is a utility function that represents the satisfaction level of a portfolio. In determining
the utility of a portfolio, the value of wealth and utility function parameters are
considered to remain optimal. The results show that the smaller the value of the
utility function parameters, the greater the level of satisfaction obtained. Conversely,
the greater the wealth value, the lower the investor’s desire to invest. Then, it should
be noted that the portfolio model is a stochastic model so that loss valuation needs
to be done. Risk measure is one way to perform loss valuation. In this case, the
risk measures used are utility function-based expectation, Value-at-Risk (VaR), and
Tail Value-at-Risk (TVaR). The three risk measures can be used as a reference in
the selection of loss portfolios through stochastic dominance. The results show that
the greater the tolerance level of confidence, the greater the VaR and TVaR values
obtained. Conversely, for the exponential utility type, the smaller the tolerance level
of confidence, the greater the level of satisfaction received. As for the rank utility
type, it is found that the smaller the tolerance of the confidence level, the smaller
the level of satisfaction received. Therefore, the amount of loss and the level of
satisfaction can be taken into consideration in determining the best loss portfolio
according to investor preferences. |
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