Indifference Curve

CFA Level I Portfolio Management
#1

I understand what an indifference curve is–it tells us how much return does an investor want for a given level of risk. However, if I have to find out my indifference curve, how do I do it in practice? I’d appreciate any practical insights on how portfolio management is done.

Thanks

#2

In practice we don’t get these indifference curves exactly; at best we get a sense of how steep they are. We’ll have a client fill out a questionnaire, and from his answers we’ll determine that he is not very risk averse (his indifference curves are relatively flat; maybe he needs an extra 1% return for an extra 5% in standard deviation of returns), or he is very risk averse (his indifference curves are relatively steep: he needs an extra 4% return for an extra 1% standard deviation of returns), or he is somewhere in between.

It’s honestly not very precise.

#3

Thanks S2000magician…

#4

You’re welcome.