O'Reilly logo

Stochastic Finance, 4th Edition by Alexander Schied, Hans Föllmer

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

2.3Expected utility

In this section, we focus on individual financial assets under the assumption that their payoff distributions at a fixed time are known, and without any regard to hedging opportunities in the context of a financial market model. Such asset distributions may be viewed as lotteries with monetary outcomes in some interval on the real line. Thus, we take M as a fixed set of Borel probability measures on a fixed interval S . In this setting, we discuss the paradigm of expected utility in its standard form, where the function u appearing in the von NeumannMorgenstern representation has additional properties suggested by the monetary interpretation. We introduce risk aversion and certainty equivalents, and illustrate these notions ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required