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Mathematics, 25.03.2021 16:40 yogiiiii7131

Besides a certain wealth of 100, Ms. A owns one house, the value of which is 80. The probability of full loss (due to fire) for this house is equal to 0.10 for a given time period and Ms. A has no access to an insurance market. In the absent of fire, the value of the house remains equal to its initial value. Mr. B has the same initial wealth but owns two houses valued a, 40 for each. The probability of full loss for each house is 0.10 and the fires are assumed to be independent random variables (e. g. because one house is in Toulouse (France) and the other one in Mons (Belgium)). Draw the cumulative distribution functions of final wealth for Ms. A and Mr. B and compute the expected final wealth for each of them Show that Ms. A has a riskier portfolio of houses. Select three (or more) concave utility functions and compute the expected utility for Ms. A and Mr. B. If you do not make mistakes, then the expected utility of Mr. B must be systematically higher than that of Ms. A for each utility curve you have selected.

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Besides a certain wealth of 100, Ms. A owns one house, the value of which is 80. The probability of...
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