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The relationship between expected utility and higher moments for distributions captured by the Gram–Charlier class |
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| Authors: | George Christodoulakis David Peel |
| Institution: | aBank of Greece, 21, El. Venizelos Ave., Athens 10250, Greece bManchester Business School, MBS Crawford, Booth Street West, Manchester, M15 6PB, UK cManagement School, University of Lancaster, Lancaster LA1 4YW, UK |
| Abstract: | In this letter we derive the closed form solution for expected utility in terms of higher moments of the distribution of wealth when expected utility takes the CARA form and the distribution of wealth is captured by the Gram–Charlier class of distributions. We derive the condition under which positive skewness can be associated with a decrease in expected utility. |
| Keywords: | Gram–Charlier Exponential value function Kurtosis Skewness Utility |
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