Utility Functions of Equivalent Form and the Effect of Parameter Changes on Optimum Decision Making
AbstractWe derive a class of utility functions that are equivalent with respect to a well-defined functional form. We study the case of constant relative risk aversion (of some order) to investigate on different equivalence relations in order to determine the, possibly infinite, number of equivalence classes when utility functions satisfy a specific form. Then we apply our results to standard applications in economics and finance, for example, to the effect of price volatility on optimum hedging. --
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Bibliographic InfoPaper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 02/06.
Date of creation: 2006
Date of revision:
equivalence class; risk aversion; sensitivity analysis;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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