Modeling a Risk-Averse Investor in the Stock Market Pt. 3: Trying to Find a Closer Approximation for the net value

In this blogpost, I will attempt to find an approximation for the series posted in part 2. In part #2, we had the table:   ROI based upon the period we invested in  (1/r)         Sum of each investment   Period 1 ROI  Period 2 ROI Period 3 ROI Period 4 ROI Period J   *SPECIAL CASE* $1/1 $1/1 $1/1 $1/1 + … 1+1+1+1 + …  = $J Investment #1 $1/2 $1/4 $1/8 $1/16 + … ½ + ¼ + 1/8 + 1/16 + … = $2.00 Investment #2 $1/3 $1/9 $1/27 $1/81   + … $1/3 Continue reading Modeling a Risk-Averse Investor in the Stock Market Pt. 3: Trying to Find a Closer Approximation for the net value

Modeling a Risk-Averse Investor in the Stock Market Pt. 2:

*This is just a continuation of the first blogpost titled “Modeling a Risk-Averse Investor in the Stock Market Pt. 2”. * Finding an Upper Bound for our Heuristic: To approximate the upper bound, let’s take J –> ∞ and not include the investment# 1 case as it is a special case then we have: Above, we shifted the index of r by 1. It now has to have an initial value of r = 2 insuring the first-rate equals ½. We can make another table to intuitively understand what this represents:   ROI based upon the period we invested in Continue reading Modeling a Risk-Averse Investor in the Stock Market Pt. 2:

Modeling a Risk-Averse Investor in the Stock Market Pt. 1:

Suppose someone wants to invest in the stock market, how would you approach modeling an individual investing in this asset class? The particular asset class at hand here is stocks. We will make intuitive assumptions about the stock market and how a risk-averse individual operates in the stock market. Then, we will try to transform said assumptions to make a simple heuristic. This heuristic will then generate a numerical value which we will describe in terms being between an upper and lower boundary. Let’s make the assumptions Creating the Assumptions: ROI on stocks to diminish overtime due to increasing market Continue reading Modeling a Risk-Averse Investor in the Stock Market Pt. 1: