Divergence Utilities
26 Pages Posted: 22 Oct 2007
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
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