1. Explain why a quadratic utility function

U(W) = W – bW2/2, b > 0 will imply that an investor’s utility function will be a function of the mean return and the variance of his portfolio. Show why this utility function implies decreasing risk-aversion.


closed as off-topic by LocalVolatility, Chris Taylor, Bob Jansen Feb 6 at 10:16

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  • 2
    $\begingroup$ This seems like a homework question. What have you tried so far? $\endgroup$ – skoestlmeier Feb 6 at 7:05