Prove that, in the case of a normally distributed random variable (tilde{x}), the slope (mathrm{d} mu /
Question:
Prove that, in the case of a normally distributed random variable \(\tilde{x}\), the slope \(\mathrm{d} \mu / \mathrm{d} \sigma\) of the indifference curves in the expected return-standard deviation plane for an exponential utility function \(u(x)=-\frac{1}{a} \exp (-a x)\), for \(a>0\), is given by formula (2.15) and, in the case of a quadratic utility function \(u(x)=x-\frac{b}{2} x^{2}\), for \(\mu<1 / b\), by formula (2.16).
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Financial Markets Theory Equilibrium Efficiency And Information
ISBN: 9781447174042
2nd Edition
Authors: Emilio Barucci, Claudio Fontana
Question Posted: