Explain the denotation a utility function
Explain the denotation a utility function and how it can vary between investors?
Expert
If we denote a utility function by U (W) here W is the ‘wealth,’ subsequently one would expect utility functions to have specific commonsense properties. In the given a prime (‘) denotes differentiation respecting W.
• The function U (W) can vary between investors each will have a various attitude to risk for illustration.
• U’ (W) ≥ 0: more is preferred to less. When this is a strict inequality then satiation is not possible, the investor will all the time prefer more than he has. Such slope measures the marginal improvement in utility along with changes in wealth.
• Usually U’’ (W) < 0: there utility function is strictly concave.
Since it is the rate of change of the marginal ‘happiness,’ this gets harder and harder to raise happiness as wealth increases. An investor along with a concave utility function is said to be risk averse. That property is frequently referred to as the law of diminishing returns.
In order for a derivatives market to function two kind of economic agents are required: hedgers & speculators. Describe.Two kinds of market participants are essential for the operation of a derivatives market: speculators & hedgers.
What is complete market and incomplete market in term of probabilistic?
What is Black–Scholes equation? Explain.
Explain the cash budget and the capital budget relation to pro forma financial statements.
Why is volatility annualized standard deviation of return?
Explain finite-difference method in finance.
Explain different forms of market efficiency.
What are Capital Market Line and Market Portfolio?
What are the primary variables being balanced in the EOQ inventory model?
Explain the formula of hedging contract.
18,76,764
1948840 Asked
3,689
Active Tutors
1413775
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!