Abstract

In the field of financial economics, many researchers have developed optimal portfolio selection models. Unfortunately, those models cannot be implemented directly by investors since the coefficient of risk aversion is an exogenous variable. However, even if investors have no idea about their attitudes toward risk, investors might specify a maximum probability of failing to reach a specific portfolio threshold. According to this argument, we regard stop-loss level as portfolio threshold and penetrate the attitude towards risk through the stop-loss level. Then, we can achieve investor’s optimal life-time portfolio selection model.

Key words: Dynamic asset allocation, portfolio optimization, value-at-risk, stop-loss.