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Portfolio Selection Under Exponential And Quadratic Utility

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  • Buccola, Steven T.

Abstract

The production or marketing portfolio that is optimal under the assumption of quadratic utility may or may not be optimal under the assumption of exponential utility. In certain cases, the necessary and sufficient condition for an identical solution is that absolute risk aversion coefficients associated with the two utility functions be the same. In other cases, equality of risk aversion coefficients is a sufficient condition only. A comparison is made between use of exponential and quadratic utility in the analysis of a California farmer's marketing problem.

Suggested Citation

  • Buccola, Steven T., 1982. "Portfolio Selection Under Exponential And Quadratic Utility," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 7(01), pages 1-10, July.
    • Handle: RePEc:ags:wjagec:32418
    DOI: 10.22004/ag.econ.32418
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    References listed on IDEAS

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    Cited by:

    1. Feinerman, Eli & Vaux, Henry J., Jr., 1984. "Uncertainty And The Management Of Salinity With Irrigation Water," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 9(2), pages 1-12, December.
    2. Boisvert, Richard N. & Peterson, Jeffrey M., 1996. "Conditions for Requiring Separate Green Payments Policies Under Asymmetric Information," Working Papers 127934, Cornell University, Department of Applied Economics and Management.
    3. Peterson, Jeffrey M. & Boisvert, Richard N., 1998. "Optimal Voluntary "Green" Payment Programs To Limit Nitrate Contamination Under Price and Yield Risk," Research Bulletins 122687, Cornell University, Department of Applied Economics and Management.
    4. Inmaculada Rodríguez-Puerta & Alberto Álvarez-López, 2016. "Optimal allocation of a fixed production under price uncertainty," Annals of Operations Research, Springer, vol. 237(1), pages 121-142, February.
    5. Youcheng Lou, 2023. "On the functional equivalence of two perfectly competitive economies with negative exponential utility and linear utility with a quadratic holding cost," Mathematics and Financial Economics, Springer, volume 17, number 4, December.
    6. Peterson, Jeffrey M. & Boisvert, Richard N., 2001. "Designing Nonpoint Source Pollution Policies With Limited Information About Both Risk Attitudes And Production Technology," 2001 Annual meeting, August 5-8, Chicago, IL 20720, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. William T. Smith, 2022. "The optimal hedge ratio: A solution, a conjecture, and a challenge," Economics Bulletin, AccessEcon, vol. 42(2), pages 877-888.
    8. Babcock, Bruce A. & Choi, E. Kwan & Feinerman, Eli, 1993. "Risk And Probability Premiums For Cara Utility Functions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(01), pages 1-8, July.
    9. William T. Smith, 2023. "The optimal hedge ratio: A closed-form solution, a conjecture, and a challenge," Economics Bulletin, AccessEcon, vol. 43(2), pages 748-758.
    10. Inmaculada Rodríguez-Puerta & Alberto A. Álvarez-López, 2016. "Optimal allocation of a fixed production under price uncertainty," Annals of Operations Research, Springer, vol. 237(1), pages 121-142, February.
    11. Feinerman, Eli & Shani, Y. & Bresler, E., 1989. "Economic Optimisation Of Sprinkler Irrigation Considering Uncertainty Of Spatial Water Distribution," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 33(2), pages 1-20, August.
    12. Daniel Dimitrov, 2022. "Intergenerational Risk Sharing with Market Liquidity Risk," Tinbergen Institute Discussion Papers 22-028/VI, Tinbergen Institute.

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