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

2025/12/12 by Graham Giller, Giller, Graham L
Decision Sciences · Economics, Econometrics and Finance · #FOS: Economics and business #Financial Markets and Investment Strategies #Portfolio Management (q-fin.PM) #Risk Management (q-fin.RM) #Risk and Portfolio Optimization #Stochastic processes and financial applications

paper · pdf · doi:10.48550/arxiv.2512.11666

openalex publication_date 2025/12/12 · openalex created_date 2025/12/16 · openalex updated_date 2026/07/28

Abstract

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.

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