# Question: Let c be consumption Under what conditions on the parameters

Let c be consumption. Under what conditions on the parameters λ0 and λ1 could the following functions serve as utility functions for a risk-averse investor? (Remember that marginal utility must be positive and the function must be concave.)

a. U(c) = λ0 exp (λ1c)

b. U(c) = λ0cλ1

c. U(c) = λ0c + λ1c2

a. U(c) = λ0 exp (λ1c)

b. U(c) = λ0cλ1

c. U(c) = λ0c + λ1c2

**View Solution:**## Answer to relevant Questions

Repeat the previous problem assuming that δ1= 0.05 and δ2 = 0.12. Verify that both procedures give a price of approximately $15.850. Warren Buffett stated in the 2009 Letter to Shareholders: "Our derivatives dealings require our counterparties to make payments to us when contracts are initiated. Berkshire therefore always holds the money, which leaves us ...Suppose that the stock price follows a jump-diffusion process as outlined in Section 20.7. Let the jump intensity be λ = 0.75, the expected jump exp(αJ ), with αJ = −0.15, and let the jump volatility be σJ = 0.25. You ...A European shout option is an option for which the payoff at expiration is max(0, S − K, G − K), where G is the price at which you shouted. (Suppose you have an XYZ shout call with a strike price of $100. Today XYZ is ...The quanto forward price can be computed using the risk-neutral distribution as E(Yx−1). Use Proposition 20.4 to derive the quanto forward price given by equation (23.30).Post your question