Hi, The answer to this questions says, '....based on Wilkie's 1995 parameters, mean- variance theory suggests that investors should never invest in equities...." Why? How do the values of the parameters given previously suggest this? Thanks very much.
You won't be able to see from the parameters in the notes why the expected return on property is higher than on equities and simultaneously why the variance on property is lower than on equities. This is because Ch 8 doesn't cover the property equations. Q8.27 is not expecting you to deduce this fact! It is giving it to you and then asking you why, according to MVPT, you wouldn't invest in property. If you really keen to find out about the parameters etc, I suggest you read the Wilkie model paper in the British Actuarial Journal No 1 1995. But good luck, it isn't a short read! You can access this paper from www.actuaries.org.uk. You need to log in as a member (top right of screen). Your username is your ARN and your password is your full date of birth with the forward slashes. eg 12/12/1980. Then click on "Knowledge Services" then "Knowledge portal" then follow link to British Actuarial Journal and Ingenta. Then download the pdf file.
