Utility Maximization, Risk Aversion, and Stochastic Dominance
Utility Maximization, Risk Aversion, and Stochastic Dominance
Consider an investor trading dynamically to maximize expected utility from terminal wealth. Our aim is to study the dependence between her risk aversion and the distribution of the optimal terminal payoff. Economic intuition suggests that high risk aversion leads to a rather concentrated distribution, whereas lower risk aversion results in …