wilmott.com

Hi All,The E(u(R))=E(R-(gamma/2)R^2=E(R)+(gamma/2)E(R)^2-(gamma/2)V(R). Prove that E(u(R)) for R is N(mu, sigma^2) is increasing in mu and decreasing in sigma^2.Now if we dont consider all utility functions to be differentiable, how do we prove this.Thanks and RegardsSreehari

Hi AllPlease help in shedding some light. If the utility functions are differentiable it seems easy to prove it. If not, it seems so complicated. RegsSreehari

It's kind of an interesting problem, and I'm sure you can look it up. If you haven't done that yet,I think the first step is to define exactly the assumed properties of u(R).