Isoelastic utility

The isoelastic utility function, even CRRA utility function ( engl. Constant Relative Risk Aversion ) utility function is the standard of modern financial planning Economics. It belongs to the class of HARA utility functions (English Hyperbolic Absolute Risk Aversion ).

It has the form

Where Pratt measure of risk aversion. The fact that it is also called CRRA utility function, lies in that it is the only function with constant relative risk aversion in the fact. Because it is the only solution of the nonlinear second-order ODE, ie the general formulation of the CRRA property by using Pratt's measure.

The case is the classic case ( " Bernoulli case "). It is calculated by applying the rule of L' Hospital.

• Financing
• Financial Mathematics