The Foster-Hart measure as a tool for determining the set of risky portfolios that do not expose the investor to the bankruptcy
The Foster-Hart measure as a tool for determining the set of risky portfolios that do not expose the investor to the bankruptcy

Summary/Abstract: The aim of this publication is to present the Foster-Hart measure in the process of building the portfolios, which in theory do not expose the investors to the bankruptcy. This measure, besides the fact that it is monotonic, objective, universal, and independent from the parameters of an ‘ad hoc’, includes the possibility of the investor’s bankruptcy. In the context of this objective, it was considered appropriate to develop a basic set of equations, which are required for calculating the share of risky assets in these portfolios. In the later part of the study, a theoretical portfolio was presented, built through using the measures of Foster-Hart. In addition, the consideration was enriched by the opportunity to invest in risk-free assets. As a result, it was shown that the characterized measure allowed for the construction of a set of investments, which in theory should not expose the investor to go bankrupt, and which may offer a combination of attractive investments for different types of investors.

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