Lecture2UtilityFunctionandPriceofRisk资产组合金融系，研究生课程课件.ppt

Lecture 2 Utility Function and Price of Risk In this chapter……. How to construct utility function Definition of risk aversion Markowitz’s risk premium=EW-CEW PrattArrow’s RPRRA(-WU’’/U’) Why investors love right skew EU and mean-variance target All investors love FOSD,Risk aversion investors prefer SOSD 0. The St. Petersburg Paradox Game A: Flip a fair coin ,The payoff: If the head appears, you get $2.otherwise nothing. You would pay 1 $ for that game. 0. The St. Petersburg Paradox The game：Flip a fair coin until the first head appears The payoff: If the first head appears on the k-th fli