Mathematics and Financial Economics

, Volume 13, Issue 2, pp 287–302 | Cite as

Increasing risk aversion and life-cycle investing

  • Kerry Back
  • Ruomeng LiuEmail author
  • Alberto Teguia


We derive the optimal portfolio for an investor with increasing relative risk aversion in a complete continuous-time securities market. The IRRA assumption helps to mitigate the criticism of constant relative risk aversion that it implies an unreasonably large aversion to large gambles, given reasonable aversion to small gambles. The model provides theoretical support for the common recommendation of financial advisors that older investors should reduce their allocations to risky assets, and it is consistent with empirical relations between age, wealth, and portfolios.


Risk aversion Portfolio choice Life-cycle investment 

JEL Classification



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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Jones Graduate School of Business and Department of EconomicsRice UniversityHoustonUSA
  2. 2.College of BusinessUniversity of Nebraska-LincolnLincolnUSA
  3. 3.Sauder School of BusinessUniversity of British ColumbiaVancouverCanada

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