Question
Suppose you are a hedge fund manager and you have two customers A and B. You have a good investment plan whose returns from $100,000
Suppose you are a hedge fund manager and you have two customers A and B. You have a good investment plan whose returns from $100,000 can be $130,000 with 20% chance; $110,000 with 70% chance; and $20,000 with 10% chance (which is a disaster case). You know your customers have the same CRRA utility U(W) = [W1^(1-a)]/(1-a) but different degrees of risk aversion: a = 0:1 for Customer A and a = 0:2 for Customer B (Customer B is more risk cautious than Customer A). You are risk-neutral, by the way.
How much investment fees will you ask for Customers A and B, respectively?
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Management information systems
Authors: James A. O Brien, George M. Marakas
10th edition
324658044, 73376817, 9780324658040, 978-0073376813
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