Divergence Utilities

26 Pages Posted: 22 Oct 2007

See all articles by Alexander S. Cherny

Alexander S. Cherny

Moscow State University

Michael Kupper

Vienna Institute of Finance

Date Written: September 2007

Abstract

We investigate a class of concave monetary utility functions, which we call divergence utilities. Divergence utilities are the translation invariant hull of expected utilities. This class is rather wide and includes, in particular, the entropic utility. More important, this class is very convenient analytically. We provide several representations of the corresponding concave utilities, an explicit solution of the portfolio optimization problem as well as an explicit solution of the risk sharing problem.

Keywords: Divergence utilities, concave monetary utilities, entropic utility, portfolio optimization, risk sharing

Suggested Citation

Cherny, Alexander S. and Kupper, Michael, Divergence Utilities (September 2007). Available at SSRN: https://ssrn.com/abstract=1023525 or http://dx.doi.org/10.2139/ssrn.1023525

Alexander S. Cherny

Moscow State University ( email )

Faculty of Mechanics and Mathematics
Department of Probability Theory
Moscow, 119992
Russia
007 095 939 14 03 (Phone)
007 095 939 14 03 (Fax)

HOME PAGE: http://mech.math.msu.su/~cherny

Michael Kupper (Contact Author)

Vienna Institute of Finance ( email )

Nordbergstrasse 15
Vienna, 1090
Austria

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