# Questions tagged [utility-theory]

The tag has no usage guidance.

72 questions
Filter by
Sorted by
Tagged with
34 views

### Expected Utility Theory

I have a question that Say that there is a random variable of return for a risky investment opportunity $\bar{r_i}$, its expected return is $E(\bar{r_i})$ and variance $\sigma_i^2$. Now, let's assume ...
131 views

### Utility Theory and Mean Variance Analysis

I was wondering if it's pertinent to use this interpretation of the expected utility function given by the Taylor series expansion, $${E(U(W)}\approx{U[E(W)}]+\frac{U''[E(W)]\sigma^2_W}{2}\tag{1}$$ to ...
41 views

### Domains of Utility Functions

I am learning a mathematical finance course and the lecturer didn't provide us with a rigorous definition of utility functions. He just shows us (by simple Calculus) that the utility functions of ...
225 views

### A question about the Grossman-Miller Market Making Model

I don't have any solid background in finance, but I have a strong mathematics and physics background. I am reading Algorithmic and high-frequency trading from A.Cartea, S.Jaimungal and J.Penalva, CUP (...
65 views

### How to compute the mean for utility function? [closed]

Let $u(x)=x^{2/3}$, $x>0$ be the utility function, $X \sim U(0, 100)$ is loss, wealth $w=\\\$150$. Calculate$\mathbb{E}(u(w_r))$if a coinsurance is$80\%$and gross premium is$\\\$43$. My ...
1 vote
191 views

### Epstein-Zin utility intuition

I working a lot with Epstein-Zin utility (standard in asset pricing models). But I am having some issues wrapping my head around some intuition for how this utility function works. Let's think about a ...
31 views

### Why does Cumulative Prospect Theory coincide with Choquet Integral for continuous outcomes?

In Tversky and Kahneman 1992, the authors state in a footnote that their cumulative version of Prospect Theory can be written as Choquet utility for continuous prospects. Is this statement due to the ...
1 vote
90 views

### Expectation of the negative exponential utility function for a Grossman and Miller model

I have the standard $3$-period Grossman and Miller model with $2$ outside traders and $M$ market makers. I'm told: $W_t^{(1)}, W_t^{(2)}, W_t^{(m)}$ is the wealth of the first outside trader, second ...
105 views