# Questions tagged [utility-theory]

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### 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 ...
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### 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 ...
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### 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 ...
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### 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 (...
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### 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 ...
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1 vote
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### 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 ...
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### 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 ...
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1 vote
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### 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 ...
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### Why is this utility function not picking up its penalty?

I was reading this seminal paper by Infanger. On page 40, Figure 11. was quite interesting. In particular I was interested in the top one, 19 Years and I wanted to reproduce this plot. To give some ...
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