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Risk Limited Asset Allocation with a Budget Threshold Utility Function and Leptokurtotic Distributions of Returns

Published: December 12, 2025 | arXiv ID: 2512.11666v1

By: Graham L Giller

Potential Business Impact:

Helps investors make smarter money choices.

Business Areas:
Risk Management Professional Services

An analytical solution to single-horizon asset allocation for an investor with a piecewise-linear utility function, called herein the "budget threshold utility," and exogenous position limits is presented. The resulting functional form has a surprisingly simple structure and can be readily interpreted as representing the addition of a simple "risk cost" to otherwise frictionless trading.

Page Count
7 pages

Category
Quantitative Finance:
Portfolio Management