Patent Document ID: 6078904
Application ID: 09042592
Patent Flag: 1

Claim One:
1. A computer implemented method of allocating investment funds of an investor in a portfolio comprising a plurality of investments, comprising: determining a risk tolerance function for the investor specifying the investor's probability preference at each of the plurality of monetary amounts relative to a monetary range relevant to the investor; allocating the investment funds among the investments to create an investment allocation by maximizing an expected value of a first probability density function of the investor's probability preferences determined as a function of a second probability density function of the portfolio's predicted market performance with respect to the investment funds and the investor's risk tolerance function; and allocating the investment funds comprises executing the equation: ##EQU44## where f is an allocation policy vector of N risky investments and one risk free investment; A is a monetary amount expressed over the investor's range of potential net assets; PP is a monetary preference probability value that quantitatively defines the investor's monetary utility for a monetary amount A; g() is the investor's monetary risk tolerance function that relates monetary preference probability (PP) to monetary amounts; .mu..sub.A (f) is the expected value of the investor's net assets amount as a result of implementing allocation policy f, computed from the second probability density function of the portfolio's predicted market performance; .sigma..sub.A (f) is a standard deviation of the investor's net assets amount as a result of implementing allocation policy f, computed from the second probability density function; and E() is an approximated expectation of PP from the first probability density function of preference probabilities obtained by mapping the second probability density function of the investor's net assets through the risk tolerance function.