Divergence Utilities

Cherny, Alexander S.; Kupper, Michael

doi:10.2139/ssrn.1023525

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Divergence Utilities

26 Pages Posted: 22 Oct 2007

See all articles by Alexander S. Cherny

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: 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