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The Expected utility of portfolios of assets

Author: Nielsen, Lars Tyge INSEAD Area: Finance Series: Working Paper ; 90/30/FIN/EPS Publisher: Fontainebleau : INSEAD, 1990.Language: EnglishDescription: 25 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: This paper describes two models of asset markets and portfolio choice: one where the von Neumann-Morgenstern utility function is defined on the non-negative real line and short-selling is not allowed, and one where the von Neumann-Morgenstern utility function is defined on the entire real line and short-selling may be possible. A number of properties of the derived utility function for portfolios, needed in demand and equilibrium analysis, are investigated with particular attention given to the possibility that the von Neumann-Morgenstern utility function may be unbounded below and that the derived (expected) utility of some portfolios may be negative infinity
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This paper describes two models of asset markets and portfolio choice: one where the von Neumann-Morgenstern utility function is defined on the non-negative real line and short-selling is not allowed, and one where the von Neumann-Morgenstern utility function is defined on the entire real line and short-selling may be possible. A number of properties of the derived utility function for portfolios, needed in demand and equilibrium analysis, are investigated with particular attention given to the possibility that the von Neumann-Morgenstern utility function may be unbounded below and that the derived (expected) utility of some portfolios may be negative infinity

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