2. Consider a trader with initial fund given by To holding q shares of stock i is C(q) = 10 + q². The price (x;) at which this trader sells its position is stochastically distributed according to the following probability distribution: 15, and the transaction cost function of J0.5, if a; = $8 0.5, if x; = $2 P(x;) = Let a random variable ñ be the profit of trading at each time t, t = 1, 2, ... ,T, (Ъ) Consider now that the trader's utility function is described by u(ñ) = µ(r). What is now the optimal level of position and the associated equilibrium profits?

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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2. Consider a trader with initial fund given by To
holding q shares of stock i is C(q) = 10 + q². The price (x;) at which this trader sells its
position is stochastically distributed according to the following probability distribution:
15, and the transaction cost function of
||
S0.5, if a; = $8
|0.5, if x; = $2
P(x:) =
Let a random variable îñ be the profit of trading at each time t, t = 1, 2, . ..,T,
(b)
Consider now that the trader's utility function is described by
u(ñ) = µ(7).
What is now the optimal level of position and the associated equilibrium profits?
Transcribed Image Text:2. Consider a trader with initial fund given by To holding q shares of stock i is C(q) = 10 + q². The price (x;) at which this trader sells its position is stochastically distributed according to the following probability distribution: 15, and the transaction cost function of || S0.5, if a; = $8 |0.5, if x; = $2 P(x:) = Let a random variable îñ be the profit of trading at each time t, t = 1, 2, . ..,T, (b) Consider now that the trader's utility function is described by u(ñ) = µ(7). What is now the optimal level of position and the associated equilibrium profits?
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