Patent ID: 7050998

Claim:
A computer-implemented method of allocating investment funds to a plurality of assets to construct an investment portfolio having a utility defined by at least a first function U 1 for positive rates of returns and a second function U 2 for negative rates of returns, the computer-implemented method comprising: selecting a plurality of assets in the portfolio; and allocating the investment funds to the said plurality of assets to maximize an expected utility of the investment portfolio; wherein the at least first function U 1 is a log-utility function wherein said log-utility function is at least characterized by the following: U 1 =1+ ln (1 +r ) for r≧ 0 where U 1 presents the portfolio's utility to the portfolio holder, r represents the portfolio's return, and 1n is a symbol for natural logarithm, and wherein the at least second function U 2 is a power-utility function wherein said power-utility function is at least characterized by the following: U 2 = 1 Y ⁡ [ ( I + r ) y + Y - L ] ⁢ ⁢ ⁢ f ⁢ ⁢ o ⁢ ⁢ r ⁢ ⁢ r < 0 where U 2 represents the portfolio's utility to the portfolio holder, r represents the portfolio's return, and γ represents the loss-aversion of the portfolio holder and has a value of less than or equal to 0.