A
ALEX_AK
Member
From the Sweeting textbook,
Utility function combines measures of risk and return based on a given level of wealth into a single measure of utility.
There are 3 components here,
1) measures of risk and return
2) wealth
3) utility
In the common utility functions, I see W and alpha. May I know if alpha is the measure of risk and return? Any examples of what can this measure be based on or how it can be calculated?
The utility functions seem to be using alpha * W. Why is this so?
Utility function combines measures of risk and return based on a given level of wealth into a single measure of utility.
There are 3 components here,
1) measures of risk and return
2) wealth
3) utility
In the common utility functions, I see W and alpha. May I know if alpha is the measure of risk and return? Any examples of what can this measure be based on or how it can be calculated?
The utility functions seem to be using alpha * W. Why is this so?