# Utility functions, are they used in the real world by hedge funds, banks, etc?

I am starting to study mathematical finance. When I studied microeconomics and macroeconomics I studied utility functions, but I never saw how they are in the real world. I do not see how they can be used since a utility function is very personal, and there are many stereotypes of investors: HFT firms, swing traders, day traders, etc., and their behavior not necessarily match the risk-averse behavior represented with convex functions. As an example, it is the case of companies such as Apple Inc. and netflix.com Inc. with prices $$225.74 \$$ and $$374.13 \$$ respectively, but the solvency, profitability and operating efficiency of Apple Inc.'s are better than netflix.com Inc.'s.

I wonder if utility functions are really used by hedge funds, banks, etc., to compute the price of financial instruments?

• Thanks to methods developed by Black Scholes Merton (and others) derivative instruments can be priced without using utility functions. Also, corporations maximize the value of the firm, not utility. So utilty fuctions are seldom used in Mathematical Finance (unless dealing with portfolios of individual investors). – noob2 Sep 29 '18 at 19:35