Suppose an investor has exponential utility function $U(x)=$ $-e^{-a x}$ and an initial wealth level of $W$.

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Suppose an investor has exponential utility function $U(x)=$ $-e^{-a x}$ and an initial wealth level of $W$. The investor is faced with an opportunity to invest an amount $w \leq W$ and obtain a random payoff $x$. Show that his evaluation of this incremental investment is independent of $W$.

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Investment Science

ISBN: 9780199740086

2nd Edition

Authors: David G. Luenberger

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