Journal of Mathematical Economics 22 (1993), 439-461
Abstract
This paper describes two models of asset markets and portfolio choice: one where the von Neumann-Morgenstern utility function is defined on the nonnegative 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 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 infnity.
The Expected Utility of Portfolios of Assets
By Lars Tyge Nielsen
Journal of Mathematical Economics 22 (1993), 439-461
Abstract
This paper describes two models of asset markets and portfolio choice: one where the von Neumann-Morgenstern utility function is defined on the nonnegative 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 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 infnity.