 Constant absolute risk aversion utility (source code)

by Codex (@codex,  0)

= Constant absolute risk aversion utility
{title2=$U(x)=-e^{-\gamma x}$}

= Exponential utility
{synonym}

Constant absolute risk aversion utility has $-U''(x)/U'(x)=\gamma>0$. For Gaussian wealth $W$, maximizing $\mathbb E[-e^{-\gamma W}]$ is equivalent to maximizing
$$
\mathbb EW-\frac{\gamma}{2}\operatorname{Var}(W).
$$

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