medium · Quantitative Finance
An investor with a risk aversion coefficient γ = 2 allocates wealth between a risky asset with μ = 10% and σ = 20%, and a risk-free asset with r = 2%.
According to the Merton portfolio problem, what is the optimal fraction π^* of wealth to hold in the risky asset?
- 50%
- 200%
- 100%
- 40%
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