Equivalent risky allocation: The new ERA of risk measurement for heterogeneous investors

S. Plunus, R. Gillet, G.M.B.J. Hübner

Research output: Contribution to journalArticleAcademicpeer-review


This paper introduces an investor-specific risk measure derived from the linear-exponential (linex)
utility function. It combines the notions of risk perception and risk aversion. To make this
measure interpretable and comparable with others like variance or value-at-risk, it is translated
into an Equivalent Risky Allocation (ERA), where the risk value is matched with the one of a selected
benchmark. We demonstrate that portfolio allocations are sensitive to risk perception. The
linex risk measure provides more stable allocations and is closer to the target risk profile than the
variance, while it provides better consistency of risk exposures over time than the value-at-risk.

Data source: none
Original languageEnglish
Pages (from-to)351-365
JournalAmerican Journal of Industrial & Business Management
Issue number6
Publication statusPublished - 1 Jan 2015

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