CFRM 415 - Introduction to Financial Markets
Assignment 5
Due: May 17, 2019 - 11:59 pm
Late submissions will receive an automatic grade of zero.
Question 1: i) Suppose an investor has initial wealth W0 and has the opportunity for an investment such
that the end-of-period wealth is W = W0 + H. If the investor uses exponential utiliy, show that WC W0
does not depend on W0.
CFRM 415作业代写、代做Financial Markets作业的、Python/Java
ii) Suppose an investor has initial wealth W0 and has the opportunity for an investment such that the
end-of-period wealth is W = HW0. If the investor uses power utility show that WC
W0
does not depend on
W0.
Question 2: Let W, a random variable, represent the amount of future wealth held by an investor, and
let u1 and u2 be two different utility functions. The certainty equivalent of W under u1 is denoted W
and the certainty equivalent of W under u2 is denoted W. Using the definition of certainty equivalent
and the definition of equivalent utility functions, show that if u1 ～ u2 then W
You may assume
u1 and u2 are strictly increasing.
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